State Specific Question About: ARIZONA (AZ)

Deposit Deduction Itemization

#1 Theft of that thing $XXXXX.xx

#2 Vandalism of that other thing $XXXX.xx

#3 Court costs of eviction $XXX.xx

TOTAL $XXXXX.xx

Steve gave a good answer if you are talking about itemized deductions against the security deposit. Just charge whatever it costs to replace or repair the damaged item. Good idea to have receipts in hand to back it up in case the tenant challenges you in court. Some states don't allow you to deduct for your labor, so get a written repair estimate from a reputable contractor.

However, if you're talking about taking TAX deduction, it's a similar concept but not quite the same. Basically, you still have to spend money to repair/replace the item in question, but it just goes down as either a "Maintenance" or "Supply" item on your Schedule E. The kicker here is you're using some or all of the Security Deposit to pay for those repairs/supplies, so then you have to claim that as income. It ends up being a wash (income = expenses) unless the damages are HIGHER than the Security Deposit.

If the vandalism/damages occurred at a vacant unit (i.e. no tenant, therefore no security deposit), then you just list the items as above using cost to repair, but there's no security deposit "income" to offset it. Just like if the damages exceeded the security deposit.