Tax treatment for Interest on rental security deposit

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Tax treatment for Interest on rental security deposit

Rajeev Agrawala
Member since 2023 · 3 posts · 0 votes

Hi,

I have separate accounts setup for security deposit in Baselane. When I receive interest next year would I be responsible for paying the tax on that. How do people allocate tax to the renter rather than paying it themselves?

Thanks.

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Rajeev Agrawala:


Here's a guide with links to the actual State law: NJ Security Deposit Law

It appears all interest must be paid to the Tenant, so the Tenant would pay the taxes on the interest, not you.
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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    3y

    @Rajeev Agrawala welcome to BP! I am not a lawyer nor a CPA. Some states require the money to be held in a savings account with the interest going to the tenant. Some states have no such requirement. If you receive the interest paid to you then you pay the tax. All the best!

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Rajeev Agrawala:

    Welcome to the BiggerPockets forums!

    As alread mentioned, the laws are different in some states. Let us know which state(s) your rentals are located in and we may be better able to help.


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  • Ray Hage
    Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes
    3y
    Quote from @Rajeev Agrawala:

    Hi,

    I have separate accounts setup for security deposit in Baselane. When I receive interest next year would I be responsible for paying the tax on that. How do people allocate tax to the renter rather than paying it themselves?

    Thanks.


     It depends on your state but that being said...how much interest did you really make? Is it a big enough deal to worry about reporting to the Uncle Sam? Personally, as an investor myself, it is easier to keep it in a non-interest bearing checking account to not worry about it.

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  • Rajeev Agrawala
    OP
    Member since 2023 · 3 posts · 0 votes
    3y
    Quote from @Nathan Gesner:
    Quote from @Rajeev Agrawala:

    Welcome to the BiggerPockets forums!

    As alread mentioned, the laws are different in some states. Let us know which state(s) your rentals are located in and we may be better able to help.



     I am in NJ.

    Thanks,

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Rajeev Agrawala:


    Here's a guide with links to the actual State law: NJ Security Deposit Law

    It appears all interest must be paid to the Tenant, so the Tenant would pay the taxes on the interest, not you.
    The DIY Landlord Book4.7247 Reviews
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    1Reply
  • Rajeev Agrawala
    OP
    Member since 2023 · 3 posts · 0 votes
    3y
    Quote from @Nathan Gesner:
    Quote from @Rajeev Agrawala:


    Here's a guide with links to the actual State law: NJ Security Deposit Law

    It appears all interest must be paid to the Tenant, so the Tenant would pay the taxes on the interest, not you.

     Thanks for the reference. I will pass on the interest to the tenant. However, the account is still in my name and the bank is going to issue 1099-INT in my name. How do I make the tenant pay the tax? Or in other words how do I set up the bank account so that the 1099 gets issues to the tenant directly?

    Thanks for your help.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Rajeev Agrawala:


    That's a question for your CPA. I'm sure there's a way around it, but I don't know what that would be.
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