Security Deposit and Pro-Rated Rent

2 Replies

hello all,

Bought a MF in 2014 and now I am filling out the tax forms!

On the HUD-1 settlement form, I received a credit on the purchase of the MF for the security deposits and the rent collected from the beginning of the month (officially purchased on the 5th of the month). In other words, both items (security deposits and the pro-rated rent) were not provided in escrow (i did not receive cash) but was given a credit to the purchase of my property (paid less than the agreed upon purchase price). How does these 2 items affect the basis and the income on my tax forms?

I have received 2 different answers from 2 different tax accountants.

1. Security deposits do not effect the property basis and the pro-rated rent is declared as income for the year.

2. The security deposit increases basis of the property (I get the tax advantage through depreciation but have to lay out cash to cover the security deposit) and the pro-rated rent was a reduction in the cost basis of the property.

What have you all of done in these situations?

Thank you in advance.  Ay responses are appreciated.

Anthony

Brie,

Thanks for the reply.

I understand a Security Deposit is not my money.  However since the security deposit was a credit on the purchase of the property (as opposed to providing me with real cash), how does that effect the basis of the property, if at all?

Rental Income is normally income.  However since the pro-rated rent was a credit on the purchase of the property (as opposed to providing me with real cash), how does that effect the basis of the property, if at all?  Do I just declare it as income?

Thanks again.

Anthony

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