I would appreciate any help on this, I feel like it's wrong, but my tax background isn't very strong. I recieved a 1099 IRS form from Capital One Bank yesterday for interest earned on an account. I have no accounts with Capital One Bank. I called Capital One, and they told me that it was for interest earned on the account my landlord was keeping my security deposit in.

The customer service person told me I had to talk to my landlord about it, and that I didn't have to pay taxes on it. That is obviously wrong, as they sent me a 1099 form, which is also being sent to the IRS. I know that I will eventually have to pay tax on this, but my memory from taking Tax Law, was that i wouldn't owe taxes on this money, because I hadn't "realized" it yet. I have no access to that account, it is being held by my landlord until I move out. If I stay here for 10 years, I have to pay taxes for 10 years on money I don't have access to? I would think I would owe the taxes when I move out and am finally given the money.

It's not a great deal of money, I just don't want to end up getting double-taxed on it because capital one screwed up.

Thanks for any advice in advance.

Why does this seem like its illegal to me?

Landlord opens account with your social under your name....practically sounds like identity theft.

Well, i mean, technically in NY a landlord has to hold a security deposit in an interest bearing account. I don't really know the mechanics of how that is supposed to work though. BTW this isn't some random guy renting me a room out of his house, I live in a complex, managed by a corporation, so I'm betting they're not doing anythign intentionally illegal. I'm just wondering if either they or the bank screwed up the paperwork.

Weird. I'm kinda interested how this pans out.

I guess on Monday I'll try calling the IRS help line and asking them.

I don't see how you would ever be taxed twice or why you would not need to pay taxes on this money now. I also don't see why you can't have access to the interest payments seeing as they are not a part of your security deposit the landlord has no right to hold them from you.

Read your lease first, in NY it is required to give you options on when you receive the interest. Either at the end of each year, applied to your lease payment or at the end of your lease. I find it unusual that Capitol One has your personal information but New York is so protective of it's tenants this may have been required. If you selected the choice to have the interest to be paid at the end of your lease you still must show the annual interest income.

I'm pretty sure an escrow account passes the "constructive possession" or whatever. There has to be some case law on this donkism.

This is perfectly fine and right. You should get a 1099 for interest on a escrow account. When you get your security deposit back you are owed the interest from the landlord. Or you can ask for it every year but that's a bit silly since it isnt much $$

Steve

1. make sure the account in question is NOT in your name. assuming the landlord is legit, move on to step 2.

2. Regardless of what capital one sent you (and this is NOT tax advice) you only pay taxes on what you have access to each year. For example....many of my contract companies cut me a check on 12-31-08, most of those checks i did not receive until mid-lat jan 09. The companies may well send me a 1099 that reflects those 12-31-08 payments, but I will STILL NOT pay taxes on it for 2008. Remember, on your sched c there is no place to list each 1099, just the total. Anyway, in an audit they may say "why did you only pay tax on 45000 from company ABC rather than 50,000, and I can open up quickbooks (current year) or the next years return if some time has passed and show that that money is on the following year.

Bottom line, you pay tax on it in 2022 if thats when you get the deposit back (refund minus cost basis = taxable portion).

This is just my constructive opinion, not tax advice and probably wrong.

Lol, I think what I've learned from this thread is I better call the IRS and ask. (I'll report back what they tell me). Thank you to everyone for your replies.

I'm pretty interested in what the IRS has to say about this.

As far as I understand, you need to pay taxes on the interest now. johnfortune1000 doesn't think you need to pay taxes until you get access to the money, which would basically be treating the bank account like a capital investment (where you don't realize a taxable gain until you sell). I don't see a reason why this would be treated as such.

Consider an example where you put $1000 in the bank on Jan 1. At the end of the year, you have $40 in interest, but you haven't touched the money. You still pay taxes on it that year, not the year you decide to close your account / spend the money.

In my case (and very likely in yours jman), the landlord has the legal right to the first 1% of the interest on the deposit; this is an administrative fee. As far as I can tell, the administrative fee isn't tax deductible. So basically, interest is being earned on my money, it's all being confiscated as a fee, but I'm still paying taxes on the interest. I'm pretty sure this is a correct interpretation of the law.

I'll also say that I don't see why you would think you'd get taxed on this twice; your bank won't send you a 1099 in two different years for the same dollar of interest earned.

jman, did you ever call the IRS?

I bet it wasn't worth your time........

I found a mistake on my wife's 1098. IRS says you can deduct books/materials if the university requires you but them from the U and are necessary to enrollment. She had an anatomy class where she had to buy a $140 cat and sheep brain from them. Since they allow you to get books elsewhere I assume they produce 1098 from cost of tuition and don't evaluate if anything else was deductible.

In the end after a call to the university and IRS help line I realize I am chasing about 30 bucks and not only was it not worth my time but I didn't even deduct it. I'd rather not have to go through an audit. Aready got gambling income, schedule c business, Schedule E real estate, and 2 partnerships, I am sure that is enough red flags and deductions not matching what is sent to them might not help me out.

Are you sure that your landlord (or the bank) didn't send you a check for the interest? Everywhere I've lived, the landlord pays an annual interest check rather than letting the interest compound. If this were the case, then I would think the interest is realized income, and is thus taxable.

Typically, in NYC, the landlord is required to put the money in an interest bearing account, but does not have to send you a check annually.

I didn’t. I think he SOL is up now anyway so I’m good.

Incredible bump

I honestly can’t remember what I ended up doing with this. I think it was a small enough amount of interest that I just reported it because it wasn’t worth the trouble of trying to figure out if I had to or not, probably increased my taxes by a few dollars.

When in doubt report the amount.

Don't take this as tax advice, but the law says its taxable income for the tenant. There is some other stuff that doesn't really affect the need to report.

This ^^^