Security Deposit Addendum With Interest
Description
How to fill out Addendum To Apartment Lease Regarding Security Deposit?
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FAQ
The landlord is allowed to adjust the security deposit amount when rent has not been paid or intentional damage has been made to the property. The landlord should refund the balance to the tenant when the property is being vacated.
On the balance sheet, a tenant's security deposit amount is generally shown as a liability. This is because it's an amount that the landlord may owe back to the tenant at the end of the leasing journey. It's categorized this way to reflect the potential obligation to return the funds.
The tenant can choose whether the interest is to be subtracted from the rent, held in trust until the end of the tenancy, or paid in a lump sum at the end of each year. However, be aware that with interest rates averaging below 1% in recent years, tenants may not be eligible to receive any interest at all.
In rental property accounting, returning a security deposit is not considered an expense, and should not be included in a Schedule E. Instead, you simply reduce the liability on your balance sheet by the amount you return.
Security deposit interest as a property expense To record the expense and update the lease ledgers: Create an expense account called security deposit interest expense.
