Skip to main contentSecurity Deposit Rules & Best Practices
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Security DepositLegalComplianceState LawDeductions
Security Deposit Basics
A security deposit is money collected at move-in to protect against:
- Property damage beyond normal wear and tear
- Unpaid rent
- Lease violations
- Unpaid utilities (if tenant responsibility)
Important: Security deposits are highly regulated by state law. Violating deposit laws can result in penalties of 2-3x the deposit amount.
State-Specific Regulations
Maximum Deposit Amounts
States limit security deposits, typically:
- 1 month's rent: CA, MD, MA, NJ, others
- 1.5 months' rent: WA, VA
- 2 months' rent: NV, NY
- : AL, AZ
3 months' rent
No limit: AR, CO, CT, othersCheck your state laws - this varies widely!
Some states require paying interest on deposits:
- Connecticut: 1.5% annually
- Illinois: Interest required if 25+ units
- Iowa: 5% annually
- Maryland: 3% annually (or actual interest earned)
- Massachusetts: 5% annually + in separate account
- New York: Varies by local law
- New Jersey: Varies by regulation
Most states don't require interest: Check your state
Separate Account (required in some states):
- Must keep deposits separate from personal funds
- In interest-bearing account
- In state-chartered bank
- Notify tenant of account location
States Requiring Separate Account:
- Florida, Maryland, Massachusetts, New Hampshire, others
Most States: Can commingle with personal funds (but not recommended)
Collecting Security Deposits
When to Collect
Standard: Before move-in
- With signed lease
- Before tenant receives keys
- Typically with first month's rent
Military-Friendly Option: Installment plan
- 50% at move-in
- 50% within 30 days
- In writing
- Helps PCS families with moving costs
- Certified check or money order (safest)
- Personal check (if time to clear)
- Wire transfer or bank transfer
- Electronic payment (if you have system)
- NOT cash (no paper trail)
Documentation
Provide Tenant:
- Receipt showing amount paid
- Date received
- Property address
- Bank name and location (if required by state)
- Landlord contact information
Keep for Records:
- Copy of receipt
- Copy of check or payment confirmation
- Signed lease showing deposit amount
- Move-in checklist
Move-In Inspection
Why It's Critical
Move-in documentation protects both parties:
- Establishes baseline property condition
- Prevents disputes at move-out
- Shows normal wear vs. damage
- Required evidence for deposit deductions
Inspection Process
Schedule Walk-Through
Do this before or on move-in day. Allow 30-60 minutes for thorough inspection.
Use Detailed Checklist
Room-by-room checklist noting condition of walls, floors, fixtures, appliances, etc.
Take Photos & Videos
Timestamp photos/videos showing condition. Focus on any existing damage or wear.
Both Parties Sign
Tenant and landlord sign and date the checklist. Provide copy to tenant.
What to Document
Each Room:
- Walls (holes, marks, paint condition)
- Floors (stains, scratches, condition)
- Windows (cracks, screens, operation)
- Doors (damage, operation, locks)
Allowable Deductions
What You CAN Deduct
Damage Beyond Normal Wear:
- ✅ Holes in walls (beyond nail holes)
- ✅ Broken windows or doors
- ✅ Carpet stains or burns
- ✅ Broken appliances (tenant fault)
- ✅ Pet damage
- ✅ Excessive cleaning needed
- ✅ Missing fixtures
- ✅ Broken tiles
Unpaid Amounts:
- ✅ Unpaid rent (through lease end date)
- ✅ Unpaid utilities (if tenant responsibility)
- ✅ Late fees (if in lease and state allows)
- ✅ Lease violations with costs
What You CANNOT Deduct
Normal Wear and Tear:
- ❌ Paint fading or minor scuffs
- ❌ Carpet wear from normal use
- ❌ Minor scratches on floors
- ❌ Worn faucet fixtures
- ❌ Light bulb replacement
- ❌ Nail holes in walls (small)
- ❌ Dirt on carpets (normal cleaning)
- ❌ Worn areas on countertops
Unreasonable Charges:
- ❌ Entire carpet replacement for one stain
- ❌ Full paint job for one wall mark
- ❌ Excessive cleaning fees
- ❌ "Inconvenience" fees
Illegal Under SCRA:
Move-Out Inspection & Deductions
Move-Out Process
Schedule Final Walk-Through
Schedule with tenant if possible. Do within 24-48 hours of move-out. Take photos/video for documentation.
Complete Detailed Inspection
Use same checklist from move-in. Note all damages, needed repairs, and cleaning. Compare to move-in condition.
Calculate Deductions
Get repair/cleaning estimates. Prorate for age/wear. Document all calculations.
Prepare Itemized Statement
List each deduction with cost. Include receipts or invoices. Show deposit math clearly.
Return Deposit + Statement
Send within state-required timeframe. Include check for remaining deposit. Mail to forwarding address.
Calculating Deductions
Depreciation Considerations:
- Carpet lifespan: 5-7 years
- Paint lifespan: 3-5 years
- Appliances: 10-15 years
Example - Carpet Damage:
Return Timeframes by State
Common Timeframes
14 Days: AZ, GA
21 Days: CA, OH, VA
30 Days: AL, AR, CO, FL, IL, MI, TX, WI
45 Days: NJ
60 Days: CT
Varies by Reason: Some states have different timelines for:
- Normal return vs. deductions
- Forwarding address provided vs. not provided
- Tenant terminated vs. landlord terminated
Consequences of Missing Deadline
Penalties Vary by State:
- Forfeit right to deduct anything
- Pay 2x-3x deposit amount
- Pay tenant's attorney fees
- Face additional civil penalties
Example - California:
- Must return within 21 days
- Failure: Forfeit right to deduct + bad faith penalties up to 2x deposit
Best Practice: Return ASAP, don't wait until deadline
Special Situations
SCRA Lease Termination
Deposit Return:
- Same rules apply as normal move-out
- Can deduct for damage and unpaid rent
- Cannot deduct early termination fees
- Cannot deduct remaining lease months
- Return within state timeframe
Military Deployment
During Tenancy:
- Deposit remains in place
- No special return requirements
- Normal wear and tear continues
If Tenant Deploys Before Move-Out:
- Can work with designated representative
- Mail itemization to forwarding address
- Consider extended timelines for response
- Same legal requirements apply
Property Sold
New Owner Responsible:
- Deposit transfers to new owner at closing
- Tenant must be notified of transfer
- New owner must return deposit
- Or seller returns deposit before closing
Tenant Abandons Property
Verify Abandonment (check state law):
- No contact for X days
- Rent unpaid
- Utilities disconnected
Security Deposit Checklist
At Move-In:
- [ ] Collect deposit before keys given
- [ ] Provide receipt with required information
- [ ] Complete detailed move-in inspection
- [ ] Take timestamped photos/video
- [ ] Both parties sign inspection form
- [ ] Provide copy to tenant
- [ ] Deposit into proper account (if required)
During Tenancy:
- [ ] Maintain property per lease
- [ ] Document any mid-lease damages
- [ ] Keep deposit separate (if required)
- [ ] Pay interest (if required by state)
At Move-Out:
- [ ] Schedule move-out inspection
- [ ] Complete detailed inspection within 48 hours
- [ ] Take photos/video of condition
- [ ] Compare to move-in condition
- [ ] Get repair estimates
- [ ] Calculate depreciation if applicable
- [ ] Prepare itemized statement
- [ ] Return deposit + statement within state timeframe
- [ ] Keep copies of all documentation
If Deducting:
- [ ] Only deduct for actual damage (not normal wear)
- [ ] Get receipts for all repairs
- [ ] Prorate for age/depreciation
- [ ] Provide detailed itemization
- [ ] Include receipts/invoices
- [ ] Mail to forwarding address (certified if large deductions)
Avoiding Disputes
Best Practices
Documentation:
- Thorough move-in/out inspections
- Photos and videos with timestamps
- Signed checklists
- Keep for 2-3 years
Communication:
- Clear expectations in lease
- Respond to questions promptly
- Notify of inspection timing
- Provide forwarding address instructions
Fair Deductions:
- Only deduct actual costs
- Provide receipts
- Consider depreciation
- Err on side of fairness
Handling Disputes
If Tenant Disputes:
- Review documentation
- Provide additional receipts
- Explain calculations
- Consider mediation
- Consult attorney if needed
Small Claims Court:
- Tenant can sue if they disagree
- You'll need all documentation
- Photos and receipts crucial
- Judge decides based on evidence
- Legal fees possible if you lose
Best Approach: Be fair, document everything, communicate clearly
Legal Disclaimer: This guide provides general information. Consult your state laws and a real estate attorney for specific legal advice.
- All appliances (working condition)
- Countertops (damage, stains)
- Cabinets (doors, drawers, condition)
- Sink and faucet (leaks, condition)
- Toilets (operation, cracks)
- Sinks and tubs (stains, cracks, leaks)
- Shower/tub fixtures
- Ventilation fans
- Tile and grout condition
- Landscaping condition
- Deck/patio condition
- Fencing condition
- Garage (if applicable)
Normal Wear and Tear vs. Damage
- Older carpet wears faster (normal)
- Older paint scuffs easier (normal)
- Appliances have lifespan (normal)
- Normal Wear: Expected deterioration from living
- Damage: Abuse, neglect, or accidents
- Faded paint after 3 years: Normal wear
- Crayon on walls: Damage
- Worn carpet path: Normal wear
- Red wine stain: Damage
- Scratched wood floor from furniture: Normal wear
- Gouges from dragging furniture: Damage
Itemized Statement Example
SECURITY DEPOSIT ACCOUNTING
Property: 123 Main St
Tenant: John Smith
Move-Out Date: March 1, 2025
Deposit Held: $1,500.00
DEDUCTIONS:
- Carpet cleaning (living room): $150.00
- Paint repair (bedroom holes): $200.00
- Broken window screen: $45.00
- Final utility bill (water): $85.00
------------------------
Total Deductions: $480.00
DEPOSIT RETURN:
Deposit Held: $1,500.00
Less Deductions: -$480.00
------------------------
REFUND DUE: $1,020.00
Attached: Receipts for repairs
- Follow state abandonment procedure
- Store belongings per state law
- May be able to re-rent sooner
- Still must return deposit per timeline
- Can deduct unpaid rent and damages
One Lease, Multiple Tenants:
- All tenants jointly responsible
- Deposit returned when ALL move out
- Cannot return individually
- All must be on itemized statement
Separate Leases per Room:
- Individual deposit returns
- Prorate common area damages
- Document each tenant's space separately