Tax treatment of rental deposits

When renting out a property it is usual to take a deposit from the tenant to cover the cost of any damage to the property by the tenant. A deposit of this nature may be referred to as a security deposit, a damage deposit or a rental deposit. The landlord may also ask for a holding deposit in return for taking the property off the market while the necessary paperwork is undertaken.

It is important than the landlord understands how this should be treated for tax purposes.