TL;DR

Security deposits protect landlords from damages and unpaid rent. Limits vary by state, typically ranging from one to three months of rent. Clear lease terms and state-specific return timelines are essential for compliance.

Tenants should document property conditions with photos to ensure refunds. Alternatives like non-refundable surety bonds offer lower upfront costs.

Whenever you rent out a property, it's important to do your due diligence on your future tenant. Everything from proof of income to background checks help ensure that the rental will be in safe hands. But even after a clean background check, you need an extra layer of protection and assurance to mitigate any potential losses.

That’s where security deposits come in.

A security deposit is a fully refundable amount of money tenants pay at the beginning of their lease to help cover costs beyond wear and tear. These could include basic costs like repairs, or more serious situations like unpaid rent, utility bills, or breaking a lease early.

As a landlord, property manager, or even tenant, it’s essential to know how security deposits work and why they're necessary. By understanding the amounts you're allowed to charge, any laws that dictate these charges, and when the deposit needs to be returned, you can protect yourself ahead of time.

The Basics: How Do Security Deposits Work?

In simple terms, a security deposit is a sum of money that you ask from the tenant while leasing your property to them. You or the property manager typically hold this deposit until the end of the lease, after which it’s refunded to the tenant, partially or fully.

The security deposit serves as a means to protect you from:

  • Any potential property damages beyond regular wear and tear
  • Missed rent payments or broken lease
  • Excessive cleaning fees
  • Unpaid utility bills

During the course of the lease, you can use the security deposit to cover any unpaid rent or bills. Likewise, at the end of the lease, if you find certain damages to your property, you can deduct the cost of those from the deposit before returning it to the tenant.

And if the tenant leaves the property in good shape and pays all the bills, you may return the full sum of the security deposit to them.

That being said, you can’t “spend” the money of the security deposit on anything apart from the property itself. It must go towards maintaining the rental and ensuring any related bills are paid.

Determining the Maximum Security Deposit Limits

What is the max you can charge as a landlord? Let's look at the averages for start. Simply put, the average security deposit amount reported in 2025 was $795, with additional pet fees hovering between $20 to $59.

The maximum amount that you can charge as a security deposit varies based on the location of your property. Typically, it’s calculated using the monthly rent figures, which range anywhere between one to three months of rent, depending on a range of factors.

These include:

  • Tenant’s past history, such as eviction records or felonies
  • Whether the property is furnished
  • Age of the tenant
  • Number of units you hold
  • If the tenant has any pets
  • Monthly rent
  • Tenant’s credit score
  • The state where your property is located

A lower credit score, eviction record, or poor rental history is likely to increase the security deposit amount. With TenantCloud, you can easily screen tenants and find the right ones for your property.

Is a security deposit necessary?

It's a good idea to ask for a deposit in order to increase liability and protection. However, one alternative to a security deposit is what's known as a surety bond.

What is a surety bond?

This fee is non-refundable and has a lower-cost attached. The tenant pays a third party that guarantees the landlord payment for damages or unpaid rent. While surety bonds lower move-in costs, they require the tenant to repay the bond company for any claims. This can be a good option for tenants looking for improved approval odds. Although, for property managers and landlords, it can be a greater hassle to deal with compared to collecting a security deposit.

Standard Costs: Is it Always One Month’s Rent?

Is one month the standard fee? No, the security deposit amount varies based on the factors mentioned above. The most significant one is the location of your property.

Most states have caps on the maximum security deposit you can collect, although certain states don’t impose any limits. Here’s how each state stacks up:

States Limited to 1 Month’s Rent

  • Alabama (additional allowed for pets or specific risks)
  • California (small landlords with ≤4 units may charge 2 months)
  • Delaware (for leases of 1 year or more, not applicable for furnished properties)
  • District of Columbia
  • Hawaii
  • Kansas (1.5 months for furnished, plus 0.5 month for pets)
  • Maryland
  • Massachusetts
  • Nebraska (additional 0.25 month for pets)
  • New Hampshire: 1 month or $100 (whichever is greater)
  • New York
  • North Dakota (up to 2 months for pets or if the tenant has a felony/eviction history)
  • Rhode Island
  • South Dakota (more if "special conditions" pose a risk)

States Limited to 1.5 Months’ Rent

  • Arizona
  • Michigan
  • New Jersey
  • North Carolina: 1.5 months for month-to-month; 2 months for longer leases.

States Limited to 2 Months’ Rent

  • Alaska (no limit if monthly rent is over $2,000).
  • Arkansas (only applies to landlords with 6+ properties).
  • Connecticut (reduced to 1 month if the tenant is 62+).
  • Iowa
  • Maine
  • Missouri
  • Pennsylvania: 2 months for the 1st year; 1 month for subsequent years.
  • Virginia

States with 3 Months or Higher Limits

  • Nevada

All other states don’t impose any specific limits.

Tracking security deposits can be a challenge, especially if you’ve got multiple properties. That’s where a platform like TenantCloud can help. You can easily collect and return the deposits from the platform directly.

Outline Terms Clearly in Your Lease Agreement

Your rental agreement must contain a security deposit clause that documents the rights and responsibilities of the tenant and the landlord.

If things go south, you can rely on this agreement to fight for your rights in the small claims court. Some of the terms that you should mention, include:

  • Exact amount (monetary value of the 1-3 months’ rent) and when it’s due.
  • The permitted deductions, such as unpaid rent, repairs, cleaning fees, utility bills, and leaving by breaking the contract.
  • Holding conditions, like whether it accrues any interest or is solely held in a separate account.
  • Tenant obligations, like replenishing the deposit if it’s used to a certain extent during the lease period.
  • Return period of the deposit after the tenant moves out of the property.
  • You must mention that you’ll inspect the property prior to the move-out to identify any potential damages.

Related: Landlord Tenant Relationship

What Can a Landlord Deduct From the Security Deposit?

As a landlord, you can deduct several expenses from the security deposit if the tenant violates the terms listed in the lease agreement.

Some of the major expenses that can be deducted include:

  • Repair costs that you incur once the tenant vacates the property, in case there are damages beyond the normal wear and tear. For example, holes in walls, broken windows, etc.
  • Cleaning expenses to restore the property to its original condition if the tenant leaves it in a filthy state.
  • Any unpaid final utility bills.
  • Costs associated with breaking the lease agreement without following the terms mentioned within it.
  • Unpaid rent during the course of the lease or any rent owed upon move-out.

The remaining deposit amount returned to the tenant within the stipulated time after they move out. You may also be required to provide an itemized receipt to the tenant detailing the expenses you’re deducting.

TenantCloud’s accounting tools automate these itemized reports and handle electronic payments, so you stay compliant without the manual paperwork.

Interest on Security Deposits

Some states require the landlord to pay the security deposit back with interest. For instance, Ohio requires you to pay 5% annual interest on the security deposits if they exceed $50 or one month’s rent, whichever is greater, provided the tenant resides for at least 6 months.

In these instances, you’ve to add the interest amounts and subtract the deductions and return the rest of the amount.

Understanding Federal Laws

There’s no single federal law that relates to security deposits for properties in the US. There are only state and local laws, so it’s best to check what’s applicable for your state or city.

That said, federal Fair Housing laws still apply to security deposits. These laws prohibit you from using deposits as a tool to discriminate against tenants based on their race, color, religion, sex, familial status, or disability.

For instance, you can’t ask for an additional deposit if a tenant has a service animal. Likewise, you can’t charge varying security deposits to families with or without kids based on the assumption that kids cause more property damage.

A Tenant’s Guide to Getting Your Deposit Back

As a tenant, you’d want to get your security deposit back in full. Here are the things you should do before move-out to avoid deductions:

  • Document the before/after proof of the property in the form of images or videos to prove its condition.
  • The property must be returned in a clean condition to avoid additional cleaning charges, and any damage must be repaired prior to key return.
  • Request the landlord for a move-out inspection to identify any potential issues that need fixing before you vacate the property.
  • Provide the right forwarding address so the landlord can send the deposit check, and the itemized list and receipt to you within the next 14 to 60 days.

Streamline Your Security Deposit Management

Renting your property out can be a great income stream. And with a security deposit, you can protect your investment and returns. But tracking the deposits and rents for multiple properties as a landlord or a property management company can quickly get challenging.

With a platform like TenantCloud, that becomes simpler. You can easily add security deposits and refund them whenever needed. Tenants, too, get their own portal to connect with you.

Moreover, it’s possible to screen tenants, reconcile your bank transactions, and manage all your lease agreements from a single spot.

Get our 14-day free trial now to experience how you can manage properties at scale.

FAQ

What is a surety bond, and can I use one instead of a security deposit?

Yes, you can use a surety bond instead of a security deposit. It’s a three-party agreement in which a provider (surety company) guarantees the landlord that the tenant shall fulfill all the obligations of the lease. The tenant only pays a small non-refundable fee to a surety company for this agreement.

Do I need to reveal where the security deposit is held?

It depends on your state and local laws. If your property’s local rules mandate it, you have to reveal the name of the bank, account, and address to the tenant.

Can you charge a fee for routine cleaning?

No, you can’t charge a fee for routine cleanup during the tenant’s stay. Even when they vacate, you can only deduct from the security deposit when there’s excessive filth.