This is the first year that my security deposit for my appartment has started to earn interest (it is entirely managed by the rental company). I am totally frustrated with how this is turning out.

So for $850, I earned $11.34 interest (horrible rate, but that's not the point). Out of which an "agent admin fee" of 1% = $8.50 was deducted, and I was cut a check of $2.84.

The really bad news however is that they issued me a 1099-INT for $11.34 interest income, of which I owe 33% tax, which is more than the entire check I got. So my question is: is this 1% agent admin fee deductable at all with standard deduction? We do not itemize and will certainly not start itemizing just because of this. If not deductable, is there any other way of fixing this, at least for the future? Can I elect to NOT earn interest on the deposit?

I know it seems such a small amount, but it is more of a matter of principle that I should not end up paying extra money for this supposed "interest income".

Many thanks for listening.

RubyPitbull

dixu, there are a couple of tax experts here on this site, who can and will probably shed better light on this than I can. When they sign on, I am sure they will respond.

You pose a very good question. First, yes, the managing agent of your building is allowed by law to charge a small fee for managing the account that everyone's security is placed in. They have to pay someone (a bookkeeper) to reconcile it, process forms,....
Is it fair? Depends on who you talk to. The managing agent will say yes. Tenants, such as yourself, feel it is a bit cheesy. I am on your side and feel it is a bit cheesy. But, if you choose to itemize your return, yes, you can deduct their fee in your itemization.

The interest earned on your deposit is low. But, keep in mind that there are some landlords that don't even place your money in a secured account and do not allow your money to earn any interest. It depends on the laws of the state you live in.

The good news is, tax on $11.34 is so negligible when it is added in with your regular W-2 that it barely amounts to pennies. I will say that some people choose not to even include it. I cannot tell you in good conscience, to go that route. I do understand your anger at the principle of the thing. Hey, if we lived in a country where we could have lived our lives as the founding fathers intended, there wouldn't be any taxes at all! Unfortunately, in order to govern properly, in order to extend some the benefits we receive, the powers that be created the taxation system and it was put into effect. Do we like it? No, any logically thinking person gets pretty pissed off at the amount of taxes we have to pay. But, it is part of our lives as long as we choose to live in this country. Ms Ruby Pitbull has dreamed of living on an unknown island somewhere where she can just fetch sticks and not worry about such heavy things. :-)

So, I definitely feel for you with the principle of the thing. The best thing for you to do is deposit the $11.34, be happy that you at least earned some interest and be confident that if you leave your apartment clean and in good order, you will get your original deposit back when you move out.

I hope this helped and made you smile a little bit. I know how the little things can kind of annoy us at times. :-)

AtlantaTaxExpert

You can claim the Admin Fee as a deduction only if you itemize, which is NOT likely because you are renting an apartment.

Otherwise, just report the interest income on your tax return and drive on. Life is too short to sweat the small stuff! :-)

dixu

Hello RubyPitbull, thanks for answering. You see, the problem is that despite the fact that supposedly I am earning interest on this money, I not only did not make any money, I ended up with a net loss.

Okay here's the math again: after the admin fee I was cut a check of $2.84. I owe 33% tax on the entire $11.34, which amounts to $3.74. So effectively, I paid Uncle Sam 90 cents so that my landlord can charge me a 1% fee on my security deposit! Now do you see my frustration? I'd be better off if they didn't try to give me any interest.

RubyPitbull

hahahah. You are a smart cookie.

Dixu. I knew exactly what you were talking about. I was trying to make it a bit less painful for you. Frankly, if that happened to me now, I would be as frustrated and ticked off as you are too. But, there really isn't anything you can do unless you want to send a letter to the managing agent, explaining the mathematics and tell them you would rather they keep the interest check as payment of services and not send you the form. I doubt they will respond but hey, you never know.

AtlantaTaxExpert

RubyPitbull has it about right. There is little you can do this year except pay the tax.

dixu

Thanks RubyPitBull and AtlantaTaxExpert. Like both of you said, it's no big deal really. Thanks for letting me vent!

RubyPitbull

No problem. Sometimes we need to find a safe place to blow off steam. This is a good forum for that.

AtlantaTaxExpert

Glad to help!