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Who pays taxes on the interest a rental deposit generates? nickravo1@gmail.com 03-26-2008
Posted by nickravo1@gmail.com on March 26, 2008, 7:02 am
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 I assume it is the landlord. Even though the interest goes back to the
tenant (and they presumably have to pay taxes on it, too.)

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Posted by Phil Marti on March 26, 2008, 7:55 am
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 "nickravo1@gmail.com" wrote:

>I assume it is the landlord. Even though the interest goes back to the
> tenant (and they presumably have to pay taxes on it, too.)

It depends on who winds up with the money. When I was a landlord in DC I
was required by local law to hold the security deposit in an escrow account
and pay the interest to the tenant annually. I then treated the interest
paid as "nominee" interest, and only the tenant had taxable income from it.
See the instructions for Schedule B of the 1040 and the 1099 series.

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Phil Marti
Clarksburg, MD

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Posted by way111 on March 27, 2008, 12:43 pm
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> It depends on who winds up with the money. When I was a landlord in DC I
> was required by local law to hold the security deposit in an escrow account
> and pay the interest to the tenant annually. I then treated the interest
> paid as "nominee" interest, and only the tenant had taxable income from it.
> See the instructions for Schedule B of the 1040 and the 1099 series.
>
> --
> Phil Marti
> Clarksburg, MD
>

The escrow accounts I use pay a ridiculously low interest rate,
something like 0.15%. For the amount of interest this generates every
year, I just pay the taxes myself, because it is not worth it to me to
do the paperwork to shift $5 of income to each tenant.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by nickravo1@gmail.com on March 27, 2008, 4:45 pm
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On Mar 28, 3:43 am, way...@gmail.com wrote:
>
> > It depends on who winds up with the money.  When I was a landlord in DC I
> > was required by local law to hold the security deposit in an escrow account
> > and pay the interest to the tenant annually.  I then treated the interest
> > paid as "nominee" interest, and only the tenant had taxable income from it.
> > See the instructions for Schedule B of the 1040 and the 1099 series.
>
> > --
> > Phil Marti
> > Clarksburg, MD
>
> The escrow accounts I use pay a ridiculously low interest rate,
> something like 0.15%. For the amount of interest this generates every
> year, I just pay the taxes myself, because it is not worth it to me to
> do the paperwork to shift $5 of income to each tenant.
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used,   >>
> << nor can it used, for the purpose of avoiding penalties  >>
> << that may be imposed upon the taxpayer.                  >>
> <<                                                         >>
> <<   The Charter and the Guidelines for submitting posts   >>
> <<  to this newsgroup as well as our anti-spamming policy  >>
> <<                  are atwww.asktax.org.                 >>
> <<         Copyright (2007) - All rights reserved.         >>
> << ------------------------------------------------------- >>

True. But there must be an accounting rule or something for this
conundrum. (There are times when rate are higher and if you have
multiple high end properties .... ) It doesn't make sense for the
landlord to pay taxes on interest on a deposit that is returned to a
tenant. A tax credit for the taxes paid on interest on a deposit
returned to a tenant seems like a good idea.

========================================= MODERATOR'S COMMENT:
please trim the post to which you are responding

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Bill on March 26, 2008, 10:04 am
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nickravo@gmail.com (nickravo1@gmail.com) posted this query:

>I assume it is the landlord. Even though the
>interest goes back to the tenant (and they
>presumably have to pay taxes on it, too.)

States may have legislation which would affect this issue. Normally,
such interest would properly be held in escrow, and any interest might
be credited as miscellaneous income to the property, if the escrow
account pays interest.

40 years ago, when I last had some income property, I accrued the
interest as a credit toward the deposit total ... and when the tenant
departed (with no security or damage deductions), I included the imputed
interest as an increase to the original deposit amount -- to the
satisfaction of my tenant (who was surprised I did so).

I'm not aware of any IRS specific mention of this issue.

Bill

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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