Baselane Blog

A Landlord’s Guide to Collecting and Managing Security Deposits

Saad Dar

Writer and Editor at Baselane 13 September 2022 16 Min Read
A Landlord’s Guide to Collecting and Managing Security Deposits

Inviting a new tenant to live in your rental property is a big deal, and you want to ensure you’re covered in case they cause damage or stop paying rent. That’s why it’s a good idea to collect a security deposit: money to be set aside if your tenant leaves you on the hook.

Keep reading to find out how much money you should collect as a security deposit and how to manage it.

1. Why Do I Need a Security Deposit?

Even the best tenants can occasionally cause problems. A security deposit is their promise to reimburse you if their actions cost you money.

Most commonly, a security deposit is used to cover any rent that’s still unpaid when the tenant moves out and the cost of repairing damage over and above normal wear and tear. Some states also include provisions for landlords to deduct additional costs like unpaid utility bills and the cost of cleaning a unit left in poor condition.

2. What Is “Normal Wear and Tear”?

Normal wear and tear refers to the inevitable deterioration of your rental property over time. Even when the home is properly cared for, it’s normal for the flooring to wear out, paint to fade, and appliances to break down.

Most state laws only allow you to use the security deposit money to pay for damage over and above normal wear and tear. That means you can’t charge your tenant to replace carpet worn thin from foot traffic, but you can charge them to replace carpet scratched up by their cat.

Fortunately, at least some of your wear and tear is paid for when you claim depreciation on your taxes. Read our article, The Landlord’s Ultimate Guide to Tax Deduction, to learn more about what you can claim on your taxes as a landlord.

3. Do I Need to Include the Security Deposit Terms in the Lease?

You should always include the security deposit terms in the lease when onboarding a new tenant. In addition to preventing confusion over your respective responsibilities, it can serve as important proof that you’ve followed the law when it comes to collecting and handling your tenant’s deposit.

At a minimum, the lease should state the amount of the deposit, when it’s due, whether or not it will bear interest, and under what circumstances the deposit will be returned. In some circumstances, you may also want to specify how the security deposit may be used. For example, landlords in the District of Columbia can only apply security deposit funds for reasons explicitly stated in the lease.

Remember that many states enforce penalties for landlords who mishandle their tenant’s security deposits. Be sure to follow state and local laws when drafting a lease to ensure your ability to use your tenant’s security deposit if needed.

4. How Much Money Should I Collect as a Security Deposit?

Tenants can cause a lot of damage to your rental property, so you should aim to collect the largest security deposit the market will bear. One month’s rent is typical in most parts of the country, but you may be able to demand more if your rental property is in a particularly hot market.

Your state may set a cap on how much you can collect. Many states, including New York, Massachusetts, and Ohio, set the maximum security deposit you can collect at one month’s rent. Others, including California, Pennsylvania, and Maryland, limit security deposits to 2 months’ rent.

5. Where Should I Hold a Security Deposit? Do I Need to Hold the Security Deposit in an Interest Bearing Account?

We recommend a few best practices when considering where to hold your security deposits:**

1. Determine local city and/or state requirements for what type of bank account to hold the security deposit it (see below for some guidelines by state – be sure to read the specific state requirements on their websites)

2. If an escrow isn’t required, open a separate landlord bank account or virtual bank account to keep the security deposit separate. Do not commingle business and personal operational accounts with security deposit accounts

3. Make sure the Banking account is FDIC insured and regulated by State or Federal Government

The Best Banking for Landlords With Unlimited Virtual Accounts for Security Deposits
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**THIS IS NOT TO BE CONSIDERED LEGAL ADVICE in any and all circumstances. We recommend that you consult an attorney if you need legal advice.

Source: www.legalnature.com

State-by-State Requirements of Interest Bearing Accounts for Security Deposits
AlabamaNot required
AlaskaNot required. If placed in a trust account advisable. (AS 34.03.070(c)).
ArizonaNot required
ArkansasNot required
CaliforniaNot required
ColoradoNot required
ConnecticutConnecticut law outlines the rights and responsibilities of both landlords and tenants about the collection, holding and return of rent security deposits. See the law here: https://www.cga.ct.gov/current/pub/chap_831.htm#sec_47a-21 Specifically, "(h) Escrow deposit. (1) Each landlord shall immediately deposit the entire amount of any security deposit received by such landlord from each tenant into one or more escrow accounts established or maintained in a financial institution for the benefit of each tenant. Each landlord shall maintain each such account as escrow agent and shall not withdraw funds from such account except as provided in subdivision (2) of this subsection." Landlords must pay tenants interest on security deposits of at least the average commercial banks savings deposit rate as annually determined and published by the Banking Commissioner. Interest must be paid annually on the anniversary date of a tenancy either directly to tenants or as a credit towards the next month's rent.
DelawareSecurity deposits must be placed in an escrow bank account in a federally-insured banking institute in the United States. Landlords must disclose the location of the security deposit account (25 Delaware Code S. 5514(b)).
District of ColumbiaSecurity deposits must be placed into interest-bearing escrow accounts in D.C. and be federally or state insured (DC Municipal Regulations Chapter 14 S.308.3). Landlords must post or disclose in writing, at the end of the calendar year, where security deposits are held and the prevailing rate for each six-month period over the past year. At the end of a tenant’s tenancy, the landlord must list for the tenant the interest rate for each six-month period during the tenancy (DC Mun. Reg. Ch. 14 S.308.7).
FloridaInterest-bearing accounts are allowed but not required. Commingling of funds is prohibited (Fla. Stat. Ann. § 83.49(1)(a) & (b)). Landlords must disclose the name and address or the location of the depository, interest or non-interest bearing status, and the interest rate, if any. It is advisable to add disclosure language according to (Fla. Stat. Ann § 83.49(2)(d)).
GeorgiaNonrefundable fees are allowed, but not nonrefundable security deposits (O.C.G.A. § 44-7-30). If an owner owns more than 10 rental units or management, including rent collection, is performed by third persons, natural or otherwise, for a fee (O.C.G.A. § 44-7-36), then the Security Deposit must be kept in an escrow account established only for that purpose and the location must be disclosed to the tenant. If an owner owns 10 or fewer rental units, the landlord does not need to deposit in an escrow account (O.C.G.A. § 44-7-31).
HawaiiNot required
IdahoIt is advisable to keep deposits in interest-bearing accounts, though it is not required. The lease should include the amount of the security deposit, the name of the financial institution where it will be held in escrow, and an explanation of how the landlord will use it at the end of the tenancy (Attorney General Handbook (pg. 6 & 25)).
IllinoisLandlords with 25 units or more must keep security deposits in interest-bearing accounts. Interest must be paid to tenants at a rate equal to the minimum passbook savings account interest rate paid by the largest Illinois commercial bank as of December 31 of the year prior to the beginning of the lease (765 ILCS 715/1). The lessor shall, within 30 days after the end of each 12-month rental period, pay to the lessee any interest that has accumulated to an amount of $5 or more, by cash or credit to be applied to rent due, except when the lessee is in default under the terms of the lease. The lessor shall pay all interest that has accumulated and remains unpaid, regardless of the amount, upon termination of the tenancy (765 ILCS 715/2).
IndianaNot required
IowaKeeping security deposits in interest-bearing accounts is not required; however, if the account is interest bearing, interest earned during the first five years of the tenancy goes to the landlord and thereafter to the tenant. Security deposits may not be commingled with the personal funds of the landlord (Iowa Code 562A.12(2)).
KansasNot required
KentuckySecurity deposits must be placed in a bank or lending institute subject to Kentucky or US regulation. Prospective tenants shall be informed of the location of the separate account and the account number. Security deposits may not be commingled with the personal funds of the landlord (Ky Rev Stat Ann 383.580(1)& (3)).
LouisianaNot required
MaineNot required. However, security deposits must be held in a bank account or other financial institution so as to keep them beyond the claim of the landlord's creditors and may not be commingled with other funds (14 MRS 6038(1)). The landlord must disclose the account number and the name of the financial institution orally or in writing. This requirement does not apply to any tenancy for a dwelling unit which is part of a structure containing no more than five dwelling units, one of which is occupied by the landlord (14 MRS 6037(2)).
MarylandSecurity deposits must be held in financial institutions within Maryland in an account devoted exclusively to security deposits and bearing interest (Md Code Ann 8-203(d)(1)(ii)). Alternatively, deposits may be held in insured certificates of deposits or securities issued federally or by the state of Maryland (Md Code Ann 8-203(d)(2)).
MassachusettsSecurity deposits must be held in a separate, interest-bearing account in a bank within Massachusetts. A receipt shall be given to the tenant within 30 days after such deposit is received by the lessor, which receipt shall indicate the name and location of the bank in which the security deposit has been deposited and the amount and account number of said deposit. Failure to comply with this paragraph shall entitle the tenant to immediate return of the security deposit (Mass. Gen. Laws Ann. Ch 186, Section 15B(3)(a)). The tenant must receive the accrued interest (5% or less) at the end of each year or, if the tenancy is less than a year, within 30 days of termination. The landlord must provide a statement to the tenant with the location of the deposit, the amount on deposit, the account number, and the interest payable along with notice that the tenant may take the interest as a deduction of the next month's rent or paid out directly (Mass. Gen. Laws Ann. Ch 186, Section 15B(3)(b)). Commingling of other assets with security deposits is prohibited (Mass. Gen. Laws Ann. Ch 186 Section 15B(1)(e)).
MichiganNo interest is required, but the security deposit must be held in a regulated financial institution beyond the claim of the landlord's creditors for the tenant's benefit (Mich Comp Laws 554.604 & 605).
MinnesotaSecurity deposits must be held on behalf of tenants and bear simple non-compound interest at a rate of 1% per annum. Interest amounts less than $1 are excluded from payment (Minn Stat 504B.178(2)).
MississippiNot required
MissouriSecurity deposits must be placed in a financial institution insured by a federal agency. Interest earned belongs to landlords (Mo. Rev. Stat 535.300(2)). Commingling of funds is prohibited.
MontanaNot required
NebraskaNot required
NevadaNot required
New HampshireA landlord who holds a security deposit for a period of one year or longer must pay to the tenant interest on the deposit at a rate equal to the interest rate paid on regular savings accounts in the New Hampshire bank, savings and loan association, or credit union (RSA 540-A:6(IV)(a)). Tenants may request interest accrued on security deposits every three years, 30 days before the expiration of that year's tenancy. Landlords must comply within 15 days of expiration of that year's tenancy (RSA 540-A:6(IV)(c)). Commingling deposits with the landlord's personal funds is prohibited (RSA 540-A:6(II)(b)).
New JerseyLandlords with 10 or more units must invest the deposit in insured money market funds or in another account paying quarterly interest at a rate comparable to the money market fund (NJSA 46:8-19(a)(1)). Landlords with fewer than 10 units may place the deposit in an interest-bearing account in any New Jersey financial institute insured by the FDIC (NJSA 46:8-19(a)(1)). All landlords must pay the tenant interest earned annually or credit it toward rent due.
New MexicoIf the security deposit is greater than one month's rent, the landlord must pay interest on an annual basis equal to passbook interest (N.M. Stat Ann 47-8-18(A)(1)).
New YorkIf the security deposit is deposited in a bank, the landlord must advise the tenant in writing of the name and location of the bank. If the bank account is interest-bearing, the tenant is entitled to interest minus 1% of the total deposit that the landlord can retain for administration expenses (NY General Obligations Law 7-103). If the building has six units or more, the landlord must put the deposit in an interest-bearing account (NY General Obligations Law 7-103(2-a)). Commingling security deposits with personal funds is prohibited.
North CarolinaNo interest is required, but the landlord must deposit funds into a trust account with a licensed and federally-insured depository institution lawfully doing business in North Carolina or furnish a bond from an insurance company licensed to do business in the state. The lease must include the name and address of the financial institution where the deposit is held/ (NC Gen Stat 42-50).
North DakotaSecurity deposits must be placed into a federally-insured interest-bearing savings or checking account. Interest belongs to the tenants and must be paid to the tenant upon termination of the lease (ND Century Code 47-16-07.1). However, interest is not required to be paid if occupancy was shorter than nine months in duration (ND Century Code 47-16-07.1(3)).
OhioAny security deposit in excess of $50 or one month's rent, whichever is greater, shall bear interest at a rate of 5% per year. Only applicable if the tenant is in possession for six months or more. Interest must be paid to the tenant annually and upon termination of the rental agreement (Ohio Rev. Code Ann. 5321.16(A)).
OklahomaNot required, however the security deposit must be kept in an escrow account on behalf of the tenant and maintained in Oklahoma with a federally-insured institute (41 OK Stat 115(A)).
OregonNot required
PennsylvaniaSecurity deposits over $100 must be deposited in an escrow account of an institution regulated by the Federal Reserve Board, the Federal Home Loan Bank Board, the Comptroller of the Currency, or the Pennsylvania Dept. of Banking. Tenants need to be provided with the name and address of the financial institution and the deposit amount (68 PS 250.511b(a)). The escrow account may, but does not necessarily have to, generate interest (68 PS 250.511b(a)). If the deposit is in an interest-bearing account, and the rental has lasted at least two years, then the landlord may receive an administrative fee (up to 1% of the interest rate per year) and the balance of the interest must be paid to the tenant annually (68 PS 250.511b(b) & (c)). Commingling of security deposits with personal funds is prohibited.
Rhode IslandNot required
South CarolinaNot required
South DakotaNot required
TennesseeInterest-bearing accounts are not required. Security deposits must be deposited in a financial institution regulated by the state or federal government. Commingling of security deposits with personal funds is prohibited (Tenn Code 66-28-301(a)). Landlords must notify tenants at the time the lease is signed of the location of the account; however, landlords are not required to provide the account number (Tenn Code 66-28-301(h)).
TexasNot required
UtahNot required
VermontNot required
VirginiaNot required
WashingtonSecurity deposits must be deposited by the landlord in a trust account, maintained by the landlord for the purpose of holding such security deposits for tenants of the landlord, in a financial institution as defined by RCW 30.22.041 or with a licensed escrow agent located in Washington. Unless otherwise agreed in writing, the landlord is entitled to receive any interest paid. The landlord shall provide the tenant with a written receipt for the deposit and written notice of the name and address and location of the institution and any subsequent change thereof. Commingling deposits with the landlord's personal funds is prohibited (RCW 59.18.270). A trust account is not defined by the State and many interpret it to mean a separate checking account where the landlord holds only tenant money. Check with a local attorney if you are uncertain.
West VirginiaNot required
WisconsinNot required
WyomingNot required. The security deposit refund should be returned "without interest" (Wyo Stat 1-21-1208(a)).

6. What Is an Escrow Account, and When Do I Need One?

Escrow is a legal arrangement that sees your tenant’s security deposit held by a third party on your behalf. If you use an escrow bank account or service, the bank or company will collect your tenant’s deposit and hold it for you. Neither you nor your tenant will be able to touch the deposit until it’s required to be paid out under the lease terms.

Using escrow for rental security deposits can be beneficial because it makes managing your rental property finances easier. Tenants may also be more comfortable keeping their security deposit in escrow because it gives them peace of mind that their money won’t be mishandled. However, fees apply to escrow accounts that you may not be able to recover from your tenant.

Escrow accounts are mandatory for security deposits in Connecticut, Delaware, Georgia, and Oklahoma, as well as the District of Columbia. A few other states, such as Michigan, require security deposits to be held in escrow or guaranteed some other way, like with a surety bond. Refer to the table above for more details.

How to Open an Escrow Account?

We recommend that you:

  • First, make sure to check local laws to understand what they mean by “escrow”. In many states the laws are not very clear and you may want to consult a lawyer to be certain.
    • Ask a lawyer or state official the following questions:
    • Should the escrow account be opened in the Landlord or Tenants name?
    • Does the bank have to be regulated in my state or can it be regulated at the Federal level and FDIC insured?
  • Then, call or walk-into a local bank and ask if they can open an escrow account for you to hold a security deposit. Be sure to make sure the bank understands this is for a Landlord that is opening a bank account to escrow a tenant’s security deposit
  • Typically, if you as the landlord are required to open the escrow account in the tenants name you need to have the Tenant fill out a W-9 form and submit that to the bank
  • Finally, open the escrow account and deposit the security deposit funds into that escrow account

7. How Do I Return My Tenant’s Security Deposit?

When your tenant eventually moves out, you will need to return any unused part of their security deposit. This timeline ranges from as little as 14 days from when the tenant moves out to two months.

Most states require you to give your tenant an itemized list of any deductions, so the first step is to do a final inspection of the unit. Take note of all the damage and do your best to estimate the actual cost to repair it. Depending on where your rental property is located, you may also be able to deduct other expenses, like the cost of cleaning or paying overdue utility bills.

If there’s still money left after any deductions are paid, you can return it to your tenant in one of a few ways:

Check or bank transfer

You can write your tenant a check for the amount you owe or initiate a bank transfer from your account to theirs.

Certified check or cashier’s check

While the fees for certified checks and cashier’s checks are higher than you would pay when writing a personal check, they come with the security of an added paper trail. This could come in handy if you’re forced to prove payment.

Escrow payout

If your tenant’s security deposit is held in an escrow account, you can direct the escrow company to return the deposit to your tenant and close the account.

Use instead of rent payment

If some or all of the deposit was specifically intended to cover the last month’s rent, you can simply transfer the money to your landlord bank account instead of collecting rent for the last month of the lease.

No matter how you return your tenant’s security deposit, it’s important to keep good records and ensure there’s a paper trail that can be followed.

8. What Can I Do If My Tenant’s Security Deposit Isn’t Enough to Cover My Costs?

Unfortunately, it’s not uncommon that a tenant’s security deposit won’t be enough to cover your costs. However, your tenant’s liability isn’t limited to the amount of their security deposit. They’re still responsible to pay you for the full cost of unpaid rent and damage, regardless of whether they paid a deposit.

If your tenant causes more damage than their deposit can pay to fix, your only recourse is to file an action against them in small claims court. To obtain a judgment, you’ll need to submit an application and pay a fee, attend one or more hearings, and provide proof of the damage as well as their responsibility.

For many claims, the time and effort to pursue legal action simply isn’t worth it. Your best protection is to collect an adequate security deposit before allowing tenants to move in.

9. What Are the Security Deposit Rules in My State?

Each state has slightly different rules for security deposits. At a minimum, most states specify a limit to how much you can collect (usually expressed relative to the monthly rent), a deadline to return an outgoing tenant’s deposit, and how a tenant’s security deposit may be used.

StateHow Much Can I Collect?When Do I Have to Return it?What Can I Use the Security Deposit for?
Alabama1 month's rent, plus a reasonable amount for pets, tenant alterations, or anything that would increase your liability60 daysUnpaid rent, and damage beyond normal wear and tear
Alaska2 months' rent if the rent is $2,000 per month or less, no limit if the rent is over $2,000 per month14 days after the end of the lease, or 30 days if you’re taking deductions or the tenant doesn’t give proper noticeUnpaid rent, and damage beyond normal wear and tear
Arizona1.5 months' rent14 business days following the tenant’s requestUnpaid rent, and damage beyond normal wear and tear
ArkansasA “reasonable” amount, to a maximum of 2 months' rent. No maximum applies if you have six or fewer properties and self-manage your rental60 daysUnpaid rent (including late fees), cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
California2 months' rent, or 3 months' rent for furnished units21 daysUnpaid rent (including late fees), cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
ColoradoNo legal limit applies60 days if specified in the lease, 30 days if not specified in the leaseUnpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Connecticut2 months' rent, or 1 month's rent if your tenant is age 62 or olderThe latter of 30 days, or 15 days after receiving the tenant's forwarding addressUnpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Delaware1 month's rent, or unlimited if the rental is month-to-month or furnished. Tenants may choose to offer a surety bond instead of a deposit20 daysUnpaid rent (including late fees), the cost of re-renting the unit if the tenant breaks the lease,and damages beyond normal wear and tear
District of Columbia1 month's rent45 daysAll costs related to violations of the lease. Reasons for deductions must be stated in the lease or deposit receipt
FloridaNo legal limit applies15 days, or 30 days if you’re taking deductionsUnpaid rent, and damage beyond normal wear and tear
GeorgiaNo legal limit applies1 monthUnpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Hawaii1 months' rent14 daysUnpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, cost of replacing non-returned keys, and damage beyond normal wear and tear
IdahoNo legal limit applies21 days, or 30 days if specified in the leaseUnpaid rent, and damage beyond normal wear and tear
IllinoisNo legal limit applies45 days, or 30 days if you’re taking deductionsUnpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
IndianaNo legal limit applies45 daysUnpaid rent (including late fees), unpaid utility bills, unpaid utility bills, damage beyond normal wear and tear, and last month’s rent if stated in the lease
Iowa2 months' rent30 daysUnpaid rent, cost of evicting the tenant, and damage beyond normal wear and tear
Kansas1 month's rent, plus 1/2 months' rent if furnished, and an additional 1/2 month's rent for pets30 daysUnpaid rent, and damage beyond normal wear and tear
KentuckyNo legal limit applies30 days, or 60 days if the tenant disputes deductionsUnpaid rent, and damage beyond normal wear and tear
LouisianaNo legal limit applies1 monthUnpaid rent, and damage beyond normal wear and tear
Maine2 month's rent21 days, or 30 days if there is a written/signed rental agreementUnpaid rent, and damage beyond normal wear and tear
Maryland2 months' rent45 daysUnpaid rent, and damage beyond normal wear and tear
Massachusetts1 month's rent30 daysUnpaid rent, unpaid water bills, unpaid water bills, unpaid real estate taxes for which the tenant is responsible, and damage beyond normal wear and tear
Michigan1.5 months' rent30 daysUnpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
MinnesotaNo legal limit applies3 weeks after receiving tenant’s forwarding addressUnpaid rent, and damage beyond normal wear and tear
MississippiNo legal limit applies45 daysUnpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
Missouri2 months' rent30 daysUnpaid rent, and damage beyond normal wear and tear
MontanaNo legal limit applies10 days, or 30 days if you’re taking deductionsUnpaid rent (including late fees), unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear including the landlord's labor
Nebraska1 month's rent, plus ¼ months’ rent for pets14 daysUnpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
Nevada3 months' rent30 daysUnpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
New Hampshire1 month's rent, or unlimited for shared facilities (e.g., rooming houses)20 days, or 30 days if specified in the leaseUnpaid rent, unpaid real estate taxes for which the tenant is responsible, and damage beyond normal wear and tear
New Jersey1 1/2 months' rent, may be increased with rent to a maximum of 10% per year30 daysUnpaid rent, and damage beyond normal wear and tear
New Mexico1 month's rent, or unlimited if the landlord pays interest30 daysUnpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
New York1 month's rent, except where rent control laws specify otherwise14 daysUnpaid rent, and damage beyond normal wear and tear
North Carolina2 months' rent, plus a reasonable amount for pets30 days, or 60 days if the tenant disputes deductionsUnpaid rent, unpaid utility bills, unpaid utility bills, cost of evicting the tenant, and damage beyond normal wear and tear
North Dakota1 month's rent, plus an additional 2 month’s rent to a maximum of $2,500 for pets, plus 2 month’s rent for felony convictions30 daysUnpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
Ohio1 month's rent, or unlimited if the landlord pays at least 5% interest30 daysUnpaid rent, and damage beyond normal wear and tear
OklahomaNo legal limit applies45 daysUnpaid rent, and damage beyond normal wear and tear
OregonNo legal limit applies31 daysUnpaid rent, and damage beyond normal wear and tear
Pennsylvania2 months' rent, reducing to 1 month’s rent on renewal (landlord must return excess amount)30 daysUnpaid rent, and damage beyond normal wear and tear
Rhode Island1 month's rent20 daysUnpaid rent, and damage beyond normal wear and tear
South CarolinaNo limits, as long as you collect the same amount for all of your comparable units30 daysUnpaid rent, and damage beyond normal wear and tear
South Dakota1 month's rent, plus a reasonable amount for additional risks to the property, e.g., pets2 weeksUnpaid rent, and damage beyond normal wear and tear
TennesseeNo legal limit applies30 daysUnpaid rent, and damage beyond normal wear and tear
TexasNo legal limit applies30 daysUnpaid rent, tenant's failure to give proper notice before moving out,and damage beyond normal wear and tear
UtahNo legal limit applies30 daysUnpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
VermontNo legal limit applies14 daysUnpaid rent, unpaid utility bills, unpaid utility bills, cost of removing abandoned property, and damage beyond normal wear and tear
Virginia2 months' rent45 daysUnpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
WashingtonNo legal limit applies21 daysUnpaid rent, and damage beyond normal wear and tear
West VirginiaNo legal limit appliesThe lesser of 60 days or 45 days after a new tenant moves in, plus 15 days if damage exceeds deposit amount and professional work is requiredUnpaid rent, unpaid utility bills, unpaid utility bills, cost of removing abandoned property, and damage beyond normal wear and tear
WisconsinNo legal limit applies21 daysUnpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
WyomingNo legal limit appliesThe earlier of 30 days or 15 days after receiving the tenant’s forwarding address if applied to unpaid rent, plus 30 days if applied to damageUnpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear

Note that there may be additional rules in your state, county, or city that govern security deposits. For example, many states require security deposits to be held in a separate bank account.

The bottom line

A security deposit is your best financial protection if your tenant causes damage or falls behind on rent. For the best results, collect the largest security deposit you can, include the terms of the deposit in the lease, carefully follow state and local laws when handling the deposit, and return any unused portion promptly after your tenant moves out.

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FAQs
What happens if a tenant disputes my security deposit deductions?

If a tenant disputes your deductions and you still refuse to return their deposit, they may file an action against you in small claims court. If they win, you may be forced to pay a penalty in addition to returning the deposit. In New York, for example, you face a penalty of up to double the security deposit in addition to any amount you owe a tenant for mishandling their security deposit.

Do I need a new security deposit agreement if my tenant switches to month-to-month rent?

If local law states a lower maximum security deposit for month-to-month leases, you may be required to refund the excess amount. Otherwise, the initial terms of the lease usually continue to apply when switching to month-to-month, and no change to the security deposit is required.

When can I collect the security deposit?

You should collect the security deposit and the first month’s rent when your new tenant signs the lease. Be sure to give your tenant a detailed receipt for their deposit that includes all information required by local law. Consider using Baselane for automated rent collection to get paid faster, simplify your bookkeeping and ensure you’re handling your deposits appropriately.

Are landlords required to pay interest on security deposits balances?

It depends on your local city and state laws. Refer to the table above for more details.

Saad Dar

Writer and Editor at Baselane

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