What do security deposit laws regulate?
Security deposit laws regulate five things: how much you can collect, where you hold it, what you document at move-in, what you can deduct and how quickly you return the rest. Missing any one of them can cost you the right to keep anything, plus a penalty of two or three times the deposit in many states.
For a 5+ unit owner, a flawed move-out process repeats at every turnover. Our landlord tenant law guide gives the short version for four states; this page covers ten.
Security deposit limits and return deadlines by state
Deposit limits range from no statutory cap in Texas, Florida, Georgia, Illinois and Washington to one month’s rent in California, New York and Massachusetts, and return deadlines range from 14 to 45 days. The table below lists the core rules for ten states, with the statute for each.
Two details confuse owners. Arizona counts its 14 days excluding weekends and legal holidays. Illinois has two deadlines: an itemized statement with receipts within 30 days if you’re keeping anything for damage, and the full deposit within 45 days if you aren’t.
| State | Deposit limit | Return deadline | Penalty for bad faith or noncompliance | Statute |
|---|---|---|---|---|
| California | One month’s rent; two for qualifying small landlords | 21 days, itemized with receipts | Up to 2x deposit plus actual damages | Civ. Code 1950.5 |
| New York | One month’s rent | 14 days, itemized | Forfeits deposit; up to 2x for willful violation | GOL 7-108 |
| Texas | No statutory cap | 30 days after surrender | $100 + 3x amount withheld + fees | Prop. Code 92.103, 92.109 |
| Florida | No statutory cap | 15 days, or claim notice within 30 | Loses right to claim against deposit | Fla. Stat. 83.49 |
| Illinois | No statutory cap | 30 days itemized; 45 days full return | 2x deposit plus costs and fees | 765 ILCS 710 |
| Massachusetts | One month’s rent (plus first and last month) | 30 days | 3x deposit plus interest and fees | M.G.L. c.186 §15B |
| New Jersey | 1.5 months’ rent | 30 days | 2x amount owed | N.J.S.A. 46:8-21.1, 21.2 |
| Washington | No statutory cap | 30 days | Up to 2x deposit if intentional | RCW 59.18.280 |
| Georgia | No statutory cap | 30 days after possession | 3x amount improperly withheld + fees | O.C.G.A. 44-7-34, 44-7-35 |
| Arizona | 1.5 months’ rent | 14 business days | 2x amount wrongfully withheld | A.R.S. 33-1321 |
California’s one-month cap and photo rules
Since July 1, 2024, under AB 12, California Civil Code 1950.5 limits most deposits to one month’s rent, furnished or not. The two-month exception applies only to a natural person or an LLC of natural persons that owns no more than two residential rental properties with four units or fewer in total, so an owner of a 5+ unit building is held to one month.
California also added photo rules. For tenancies starting on or after July 1, 2025, you must photograph the unit at or just before move-in. Since April 1, 2025, you must photograph it after the tenant returns it, before cleaning or repairs, and again after the work is done. The 21-day itemized statement must include receipts or invoices, though they’re not required when total repair and cleaning deductions are $125 or less. A bad-faith retention can cost up to twice the deposit in statutory damages.
Which states require interest on security deposits?
Several states require landlords to hold deposits in an interest-bearing account or pay tenants interest, and the rules often depend on building size. For larger owners, these are some of the easiest deposit rules to miss.
In New York, General Obligations Law 7-103 requires a building with six or more units to hold deposits in an interest-bearing account at a New York bank; the landlord may keep 1% a year for administration and must notify each tenant of the bank. Massachusetts requires a separate interest-bearing account in a Massachusetts bank and annual interest at 5% or the lower rate the bank actually paid. New Jersey requires the deposit to be held in trust and invested; for 10 or more units it must go into an insured money market fund or a comparable variable-rate account, with annual interest paid or credited to the tenant.
Illinois’ Security Deposit Interest Act, 765 ILCS 715, applies to buildings or complexes with 25 or more units and deposits held more than six months; the 2026 rate is 0.005%, based on a passbook rate at the state’s largest bank. Chicago’s Residential Landlord and Tenant Ordinance requires interest every year at a rate set by the City Comptroller, a signed receipt, an itemized damage statement within 30 days and return within 45 days. Florida doesn’t require interest, but if you use an interest-bearing account, you must pay at least 75% of the annualized rate or 5% simple interest.
Normal wear and tear vs. damage
Normal wear and tear is the deterioration that happens from ordinary living in a unit, and deposit statutes in states such as California, New York, Massachusetts, Washington, Georgia and Illinois bar deducting for it. Damage is harm caused by abuse, neglect or accident, and that’s what a deposit can cover.
The difference is usually a matter of cause and degree. A few small nail holes from pictures are wear; a wall full of anchor holes or a fist-sized hole is damage. Paint that faded over three years is wear; crayon drawings are damage. When in doubt, compare the unit to the move-in report and photos, and ask whether a careful tenant would have left it that way.
| Normal wear and tear (no deduction) | Damage (deductible) |
|---|---|
| Faded or lightly scuffed paint | Unapproved paint colors, large stains or writing on walls |
| A few small nail holes | Large holes, broken drywall or many anchor holes |
| Carpet worn in traffic paths | Pet urine stains, burns or tears in carpet |
| Loose door handles or worn hinges | Broken doors, frames or locks from forced entry |
| Minor scratches on floors | Deep gouges, water damage from tenant negligence |
| Sun-faded blinds | Bent, broken or missing blinds |
| Mineral buildup in fixtures | Cracked sinks, tubs or toilets |
Move out inspection checklist
A move out inspection checklist is a room-by-room record of the unit’s condition when the tenant leaves, compared against the move-in record. Several states require parts of this process, so build your checklist around the strictest rule that applies to you.
Washington’s RCW 59.18.280 bars deductions for items not documented on the move-in checklist required by RCW 59.18.260. Massachusetts requires a signed statement of condition within 10 days of move-in. Arizona requires a move-in form and notice that the tenant may attend the move-out inspection. California and New York both require you to offer a pre-move-out inspection, so the tenant can fix problems before leaving.
- Give written notice of the tenant’s right to a pre-move-out inspection where required, and schedule it with at least 48 hours’ notice.
- Pull the signed move-in checklist and photos before you walk the unit.
- Photograph and date every room after the tenant hands back the keys, before any cleaning or repair.
- Check walls, ceilings, floors and carpet, doors and locks, windows and screens, blinds, appliances, fixtures, cabinets and smoke and carbon monoxide detectors.
- Record meter readings and any unpaid utilities the lease lets you charge.
- Get the tenant’s forwarding address in writing; Texas doesn’t require a refund until you have it.
- Price each deduction from invoices or written estimates and save the receipts.
- Calendar the deadline the day the tenant leaves, and send the statement and refund the way your statute requires.
Worked example: itemizing a move-out in Texas
Let’s say a tenant in your 30-unit Texas building moves out and leaves a $1,600 deposit. The carpet, installed five years ago for $2,400, is ruined by pet stains. There’s also $175 of cleaning beyond normal and $220 to repair two large wall holes. The small nail holes don’t count; that’s wear.
You can’t charge for new carpet, only for the value the tenant destroyed. Over an eight-year useful life, five years are used up, so the remaining value is three-eighths of $2,400, or $900. Add $175 of cleaning and $220 of wall repair, and total deductions come to $1,295. You refund $305 with the itemized list within 30 days of surrender.
Now the worst case. If a court finds you kept the $1,295 in bad faith, Texas Property Code 92.109 makes you liable for $100 plus three times the amount withheld, or $3,985, plus the tenant’s attorney’s fees. Miss the 30-day deadline without a good reason and the law presumes bad faith.
| Item | Amount |
|---|---|
| Security deposit held | $1,600 |
| Carpet: $2,400 x 3/8 remaining life | −$900 |
| Cleaning beyond normal | −$175 |
| Wall hole repair | −$220 |
| Total deductions | −$1,295 |
| Refund to tenant | $305 |
| Exposure if withheld in bad faith: $100 + 3 x $1,295 | $3,985 plus fees |
What happens to security deposits when you sell?
When you sell an apartment building, the deposits usually go to the buyer at closing, and many states require you to tell tenants who now holds their money. The buyer gets a credit on the settlement statement for the full deposit balance, because it’s now on the hook for the refunds.
California Civil Code 1950.5 requires the seller to either transfer each deposit to the buyer and notify the tenant, by personal delivery or first-class mail, of the transfer, any claims against the deposit, the amount and the buyer’s name, address and phone number, or return the deposit to the tenant. If neither happens, the buyer is jointly and severally liable with you. Massachusetts requires the deposit and accrued interest to pass to the buyer, who must notify tenants within 45 days. Florida requires the deposits, interest and an accounting to go to the new owner. Illinois makes the buyer liable for the deposit, with the seller jointly liable too.
Sort this out before you list. Reconcile every deposit to your ledger, confirm the amounts with tenant estoppel certificates and have the transfer notices ready to go out at closing. Deposit gaps are a common closing-table dispute and a common reason buyers slow down due diligence.
Deposit practices for a 5+ unit apartment building
In a 5+ unit building, deposit compliance is a system: one ledger, one holding account that meets your state’s rule, one move-in and move-out procedure and one calendar. Most penalties come from missed deadlines and missing paperwork, not from the deductions themselves.
New York’s interest rule starts at six units, New Jersey’s investment rule at 10 and Illinois’ interest act at 25. Florida’s notice requirement exempts landlords with fewer than five units, which means a 5+ unit owner must send it.
Selling your apartment building to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide with tenants and deposits in place, including buildings with messy ledgers or missing move-in records. We reconcile deposits during our review and handle the transfer at closing. We can also work with a 1031 exchange timeline or offer seller financing terms.
Send the address and unit count through the form on this page or call (469) 660-2977. We typically respond within 48 hours.
