Rental Property earned interest on security deposit

Forum|Forum|3 years ago
January 25, 2023
1 reply
0 views

I can’t find a clear answer on how to report & account for interest earned from a tenant’s security deposit. I received a 1099-int but I must return the security deposit with interest to the tenant at lease end.

Would I report the earned interest from the security deposit on the schedule e or account for it as interest from the rest of my ordinary investments?

I want to confirm my understanding that I will pay taxes reported on the 1099-int and the tenant will again pay taxes once the security deposit is refunded.

Is it possible to issue 1099 to my tenant with the earned interest?

Anonymous_

Employee

If you want to issue 1099s for the security deposit and interest, you could issue a 1099-MISC for the security deposit and a 1099-INT for the interest (note that either may not be required).

With respect to the interest, you would report the interest you received from the financial institution as a nominee for the tenant and then subtract that amount from your return.

See https://www.irs.gov/instructions/i1099int