Table of Contents

Security Deposit: Definition, Primary Purpose, and Example

By

澳洲幸运5官方开奖结果体彩网:James Chen

Updated February 06, 2025

Reviewed by

Marguerita Cheng

Security Deposit: Money paid when something is hired or rented to cover possible loss or damage. — Investopedia / Julie Bang

What Is a Security Deposit?

A security deposit is money that a renter gives to a landlord as proof of intent to move in and care for a property. Usually, a security deposit is returned in full to the renter at the end of the lease as long as the property wasn't damaged. If it was damaged, then funds are taken out of the security deposit to cover the costs of repairs, and the remainder is returned to the renter.

Key Takeaways

A security deposit serves as a means to fix or replace something in a rental unit that was damaged, lost, or stolen by the renter.
Security deposits are typically refunded upon departure if the property was left in reasonably good shape, to the point of normal depreciation
Security deposits typically must be paid prior to moving in.
State laws dictate how security deposits are applied once needed.

How a Security Deposit Works

A renter pays a landlord a security deposit before moving in. It's typically the same amount as the monthly rent.

A security deposit might be used toward any repairs or replacement of appliances in a rental unit if the damages resulted from the actions of the renter. For example, if a renter breaks a window or causes permanent damage to the floors or walls, then the landlord can use the security deposit toward repairs. Typically, if the property is in good condition and without the need for repair when the renter 🎀moves out, the security deposit may be returned in full.

Important

States have varying laws on where a security deposit is held, such as a separate banking or escrow account, and whether it must collect interest.

Requirements for a Security Deposit

The amount ꦆof a security deposit is typically one month’s rent but can be higher. If the rental rate🦋 on a property increases, the security deposit that is held in escrow might not be sufficient.

Security deposits can accrue interest while they are held, but the rate of rent increases will likely exceed that interest. The renter would then need to add more money to the security deposit that is being held.

However, in some cases, there may be challenges to the amount required for security deposits in particular cities or neighborhoods. Some districts could have landlords who charge higher security deposit rates compared with surrounding areas. This can have the effect of forcing lower-income individuals and families from finding places to live in those areas🌠. Local legislation might be enacted that sets limits on how large a security deposit may be in relation to the rent charged for a property.

What Is the Average Security Deposit?

Most often, the security deposit is an amount that's equal to one month's rent. Occasionally, it's equal to two month's rent (that is, the first and last months).

Can Security Deposits Include the Final Month's Rent?

Yes. In some states, landlords might apply security deposits as the final month's rent from tenants who cannot otherwise pay. Alternatively, they may use the deposit to repair damage caused by tenants. Each state may stipulate whether or not a security deposit can be used to pay the final month’s rent when occupancy of a property comes to an end. Depending on local legislation, the final month’s rent and a security deposit might not be the same and must be accounted for separately. The landlord could even need written approval from the renter to use a security deposit as the final month's rent.

Are Security Deposits Taxable Income?

Security deposits are not considered 澳洲幸运5官方开奖结果体彩网:taxable income, and local laws often treat security deposits as 澳洲幸运5官方开奖结果体彩网:trust funds.

A security deposit that is used as the final month's rent payment must be claimed as advance rent and is taxable when paid.

The Bottom Line

A security deposit is a sum of money that's required to secure a property for rent. The idea is that it's returned to the renter as long as there's no damage to the property during the lease, but that doesn't always happen. Often, the amount is equal to one month's rent. Sometimes it's equal to two m▨onth's rent, with part of it being used as the final month's rent payment.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

American Bar Association. "."
Internal Revenue Service. "."

Compare Accounts

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

澳洲幸运5官方开奖结果体彩网