Security Deposit

Definition

A security deposit is the financial buffer that protects a landlord from tenant caused damages, unpaid rent, and lease violations at the end of tenancy. Most states allow landlords to collect between one and two months of rent as a security deposit. Some states cap at one month, others at two, and a few (like Illinois for Chicago) have specific rules about interest payment on the deposit. Almost every state requires the deposit be held in a segregated account, many require it to be interest bearing, and most require the landlord to provide a written accounting of deductions within 14 to 60 days of move out. Failure to follow the return timeline is one of the most common sources of tenant lawsuits and automatic double or triple damage awards. The right way to handle deposits: hold in a separate account as required by state law, document the move in condition with dated photos, inspect thoroughly at move out, itemize any deductions with receipts or estimates, and return the balance with the itemized statement within the state required timeline. Never use security deposits to cover operating expenses or your own cash flow. That is commingling and it can trigger legal penalties.

Example

Monthly rent $1,450. State law allows up to 2 months security deposit. You collect $2,900 at lease signing, hold in a separate interest bearing account per state rules, and return the balance minus documented deductions within 30 days of move out.

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