# Form 3520 for Rental Security Deposit?



## JT20 (Mar 4, 2021)

Dear all, I am an American citizen living abroad and am in need of some guidance. My landlord placed my rental security deposit for my apartment in an escrow/trust account protected from creditors in which he is the account owner/trustee. Would this trigger Form 3520 reporting requirements? I cannot access my security deposit and am not even guaranteed to get it back if I damage the rental property or do not pay my rent. 

The IRS defines a trust on their website as "a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another."

Contrary to a typical trust fund, or even a retirement fund that triggers Form 3520 reporting requirements, my landlord is not really keeping the deposit for my benefit.

Would this still trigger Form 3520 and Form 3520-A reporting requirements?

I can't imagine that I'm the only US expat in this situation, since it is quite common for landlords to hold security deposits in escrow/trust.


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## 255 (Sep 8, 2018)

JT20 -- "Would this still trigger Form 3520 and Form 3520-A reporting requirements?" No, I think you answered your own question. Your landlord is in total control and the money is there to protect (benefit) him, if you damage his property. Cheers, 255


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## Moulard (Feb 3, 2017)

While every jurisdiction is slightly different in many there is a specific residential bond authority that holds bond money in trust. The tenant pays the bond either directly to the RBA or to the owner (or their agent) and they then lodge it with the RBA. The money is released on the authority of the owner back to the tenant at the end of the lease, in full, in part or not at all.. Typically the RBA will keep any interest earned on the bond as a way of offsetting management costs and typically there is a tribunal that is available where there is a dispute regarding how much of the bond should be distributed to the owner.

Typically these RBAs are in place to protect the tenant's right to the return of the bond... far harder to get it back if it is in the hands of the owner.

Technically, it is a trust, and technically you may be a beneficiary of the trust. That on its own does not result in a Form 3250-A reporting requirement. 
For there to be a Form 3250-A requirement you must be the owner of the trust or grantor. 
You will not be an owner of the trust as you have no powers of the trustee or powers over the trustees, so that just leaves the question of whether or not you are a grantor.
To be a grantor of the trust you will need to have gratuitously made a transfer the bond directly or indirectly into the trust.
The bond payment is a transfer but not a gratuitous one.
Thus no Form 3250-A reporting requirement

So while I agree with 255, I do so for slightly different reasons.


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## JT20 (Mar 4, 2021)

Moulard said:


> While every jurisdiction is slightly different in many there is a specific residential bond authority that holds bond money in trust. The tenant pays the bond either directly to the RBA or to the owner (or their agent) and they then lodge it with the RBA. The money is released on the authority of the owner back to the tenant at the end of the lease, in full, in part or not at all.. Typically the RBA will keep any interest earned on the bond as a way of offsetting management costs and typically there is a tribunal that is available where there is a dispute regarding how much of the bond should be distributed to the owner.
> 
> Typically these RBAs are in place to protect the tenant's right to the return of the bond... far harder to get it back if it is in the hands of the owner.
> 
> ...


Thanks so much for the detailed response! That makes sense. I take it that there are also no reporting requirements then on Form 3520 or Form 3520-A when the security deposit/bond is paid back to me?


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## Moulard (Feb 3, 2017)

JT20 said:


> Thanks so much for the detailed response! That makes sense. I take it that there are also no reporting requirements then on Form 3520 or Form 3520-A when the security deposit/bond is paid back to me?


I would not think so. While technically it is a distribution from a trust, and while technically a distribution could be reportable, it is not income (assuming it came out of wages that you previoulsy reported). 
Under the assumption that you are not paid interest on all or part of the growth while in escrow, all it is is a return of capital. Personally, I would probably just ignore it.


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## JT20 (Mar 4, 2021)

Moulard said:


> I would not think so. While technically it is a distribution from a trust, and while technically a distribution could be reportable, it is not income (assuming it came out of wages that you previoulsy reported).
> Under the assumption that you are not paid interest on all or part of the growth while in escrow, all it is is a return of capital. Personally, I would probably just ignore it.


Here in Germany, the deposits actually often earn interest which then has to be paid out to the tenant along with the original deposit amount. For my previous rental deposit on my old apartment, it was only €1 or €2 though after living there for 6 years. Would you still recommend ignoring it? If it's not 100% necessary to file Forms 3520/-A in this case, then I think I'd prefer to omit these rather than potentially opening a can of worms.


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## Moulard (Feb 3, 2017)

Avoid the worms. Works out to be less that $0.50 USD a year in interest, rounds down to zero if it was credited yearly. If not, just report it as "Other Income" or "Interest" if you felt you must.


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