What to do with Interest Earned on Security Deposit

[Megan Hirlehey]

Hi BP Community,

My tenant's security deposit earned about $9 in interest this year. He is moving out at the end of the month, and assuming he will be getting his full deposit back, what do I do with the interest? I prefer to give it to the tenant (and I'm going to assume there is some law requiring me to do that anyway), but how do I also pass on the tax liability to him? I realize that the tax on $9 is negligible, but this is more of a "big picture" thing so I learn how to do it the right way when I (hopefully) have dozens of units that might be earning hundreds/thousands of dollars per year in interest someday.

Thanks!

[Patrick Liska]

In PA you have to provide interest to a tenant on their security deposit if the tenant has been there for 2 years. That said, I believe you can charge a book keeping fee for handling the account ( which could be the full interest amount, maybe, or the tax amount that will be owed on that $9.) My opinion, if the tenant has been there for 2 years or more the tax amount on that $9 is minimal for you to pay VS the cost of not having to re advertise or have a vacant place. That leaving tenant may turn into a referal tenant if you don't penny pinch them.