Q: I reside in a big market-rate condo constructing on the Higher West Facet. My landlord positioned my safety deposit in an interest-bearing account, as required by regulation. The account solely pays 1 % and the financial institution sends the total curiosity earnings to my landlord every month as a price permitted by New York state. Nevertheless, on the finish of the yr, I obtained a 1099 for the curiosity earned regardless that I by no means obtained the funds. Is that this authorized? And isn’t the owner obligated to place the deposit in a higher-earning account contemplating that any earnings above 1 % go to me?
A: You might be right: Your landlord is required to place your safety deposit in an interest-bearing account, and New York state permits landlords to maintain 1 % curiosity in your safety deposit as an administrative price.
So if the curiosity is only one %, you wouldn’t obtain something above and past that.
State regulation requires that in buildings with six or extra items, the safety deposit have to be saved in an account in a New York state financial institution. The account “shall earn curiosity at a price which shall be the prevailing price earned by different such deposits made with banking organizations in such space.”
We checked with Bankrate.com, which tracks rates of interest, and the nationwide common curiosity on a financial savings account is at the moment 0.52 %, although higher accounts earn 10 instances that.
The scenario you describe is frequent. However landlords are trustees and have a fiduciary duty to carry the cash in an account with the best potential rate of interest, mentioned David Hershey-Webb, a tenant lawyer in Manhattan. “A part of that obligation is to behave in the perfect curiosity of the tenant,” he mentioned.
Your landlord should let you know the identify and handle of the financial institution, and the account quantity. You’ll be able to write a letter to the owner, demanding that the safety deposit be put in a higher-interest account, Mr. Hershey-Webb mentioned. Tenants should have the choice of gathering their share of the curiosity yearly, making use of it to their hire, or receiving it on the finish of the lease time period.
Although it may appear unusual that you’re receiving a 1099 for curiosity that you just by no means obtained, the financial institution is appearing appropriately. This curiosity is taken into account your revenue, and the curiosity that your landlord takes as an administrative price is taken into account extra hire.
When a safety deposit is being held for a main residence, a tenant can’t deduct this revenue. “On this case, the price is being funded by the curiosity revenue earned on the safety deposit, however that doesn’t change whether or not the tenant is entitled to a deduction,” mentioned Louis Tuchman, a New York-based associate who practices tax regulation at Herrick.
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