Q: I stay in a big market-rate house constructing on the Higher West Facet. My landlord positioned my safety deposit in an interest-bearing account, as required by legislation. The account solely pays 1 % and the financial institution sends the complete curiosity earnings to my landlord every month as a charge permitted by New York state. Nonetheless, 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’re 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 charge.
So if the curiosity is just one %, you wouldn’t obtain something above and past that.
State legislation requires that in buildings with six or extra models, the safety deposit should be stored in an account in a New York state financial institution. The account “shall earn curiosity at a fee which shall be the prevailing fee 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 present 0.52 %, although higher accounts earn 10 occasions that.
The state of affairs you describe is widespread. However landlords are trustees and have a fiduciary duty to carry the cash in an account with the best attainable rate of interest, mentioned David Hershey-Webb, a tenant lawyer in Manhattan. “A part of that responsibility is to behave in the very best curiosity of the tenant,” he mentioned.
Your landlord should inform you the identify and tackle of the financial institution, and the account quantity. You possibly can 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 lease, 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 charge is taken into account extra lease.
When a safety deposit is being held for a major residence, a tenant can not deduct this revenue. “On this case, the charge 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 accomplice who practices tax legislation at Herrick.
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