The New York Times
Real Estate Q&A
229 W. 43rd St.
New York, NY 10036
August 4, 1996
Q.: I live in a rent-stabilized building. As required by law, the landlord gets 1 percentage point of the security deposit interest as an administration fee. The bank represents it as an "early withdrawal penalty" on the IRS Form 1099 sent to me annually. Is the bank correct? Shouldn't the landlord be responsible for the income tax on the 1 percent interest he gets, while I pay the tax on the remainder of the interest?
Irving Slayton, BrooklynA.: Joel E. Miller, a Queens tax lawyer said that based on the information in the letter it appears that the bank is correctly treating the interest earned as income to the tenant.
"The interest belongs to the person, whose money is being held," Mr. Miller said. "And though the one percentage point paid to the landlord as an administration fee is probably tax-deductible by the tenant, the usefulness of such a deduction would depend upon the circumstances of the individual taxpayer. In any event," Mr. Miller said, "the administration fee would also be considered income to the landlord."
William J. Gribben, a Manhattan lawyer, who specializes in landlord-tenant matters, said that the rules regulating tenant security deposits are found in the General Obligations Law, which provides that in a building containing six or more rental units security deposits must be placed in an "interest-bearing account in a banking organization" and shall earn interest at the prevailing rate.
"Tenants, whose tenancies are subject to the New York City Rent Stabilization Law, have additional protections regarding security deposits," he said.
Under the Rent Stabilization Code the amount of the security deposit cannot exceed one month's rent, provided however that where a greater security deposit was paid by the tenant in continuous occupancy, since the date the apartment became subject to the code, the deposit may continue in effect during the term of such lease and any lease renewals.
Mr. Gribben said that the tenant has the option of having the interest applied to the rent, held in trust or paid annually.