In Alabama, the collection and return of security deposits are primarily regulated under AL Code § 35-9A-201 These laws provide a set of rules that Alabama landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in Alabama
Alabama law establishes that landlords cannot require or collect a security deposit that exceeds the cost of one month’s rent. However, there are exceptions. A separate deposit can be collected for pets, modifications to the premises, or anything that could increase liability risks to the landlord or premises.
Additional Pet Deposits. Under Alabama’s law, the landlord may ask for an additional pet deposit; however, people with disabilities who use service animals are entitled to full and equal access to housing. The tenant may not be discriminated against and the landlord may not require the tenant to pay extra to have a service animal. If the service animal causes damage to the rental unit, the tenant is liable to pay for any damages.
The Federal Fair Housing Act requires housing facilities to allow tenants who use service dogs and emotional support animals to have an equal opportunity to use and enjoy their home.
Allowable Deductions on Security Deposits in Alabama
A landlord can withhold all or a portion of the security deposit for the following reasons:
- Unpaid rent; and
- Costs of damage caused by the tenant (in excess of normal wear and tear).
To clarify, the landlord is not always allowed to use the security deposit to cover repairs for damage caused by the tenant. There must be a statement in the rental agreement allowing the landlord to do so. Also, the landlord cannot make deductions for damage that is due to normal wear and tear.
“Normal Wear and Tear” and Damage
- “Normal Wear and Tear” is defined as deterioration that occurs as a result of use for which the rental unit is intended and without negligence, carelessness, accident, or misuse or abuse of the premises or contents by the tenant or members of his household, or their invitees or guests. It can include minor issues, such as gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass and dirty grout that occur naturally as a result of the tenant using the property as it’s designed to be used.
- “Damage” refers to destruction to the rental unit that occurs because of abuse or negligence by a tenant during the course of the tenancy and can affect usefulness, value, normal function of the rental unit. Pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures are all examples of damage.
Check out our article on Wear and Tear vs. Damage to get a better idea of the difference.
The landlord can only charge the cost of repairs if the damage was caused by the failure of the tenant to comply with their obligations as a tenant. This obligation is to maintain the property and return it in the same condition it was received. The tenant must comply with these obligations:
- Comply with all building and housing codes affecting health and safety;
- Keep the premises clean and safe;
- Dispose of all ashes, garbage, rubbish, and other waste in a clean and safe manner;
- Keep all plumbing fixtures as clear as their condition permits;
- Use all facilities and appliances in a reasonable manner, including all electrical, plumbing, heating, ventilating, air-conditioning, etc.;
- Not deliberately or negligently destroy, deface, damage, or remove any part of the premises; or
- Conduct themselves and any invited guests on the premises in a manner that will not disturb the neighbors’ peaceful enjoyment of the premises.
If the damage to the premises was caused by the tenant’s failure to comply with any of the above, then the landlord may take the cost of repairing it from the security deposit.
A landlord may adopt new rules or regulations and may be enforceable if it is to promote the health, safety, and welfare of the tenants, protect the property or make a fair distribution of services and facilities for all tenants.
Returning Security Deposits in Alabama
Alabama landlords are required to return a tenant’s security deposit by first-class mail to the address provided in writing by the tenant.
Time Frame: In Alabama, landlords have 60 days after lease termination and delivery of possession to deliver the refunded security deposit in full or in partial minus any deductions. They must return a tenant’s security deposit by first-class mail to the address provided in writing by the tenant.
No Valid Mailing Address: If the tenant fails to provide a valid forwarding address, the landlord is required to deliver the deposit and itemized accounting by first class mail to the last known address of the tenant. If a last known address is not available, it must be delivered to the tenant at the address of the rental property.
Unclaimed Deposits: After 90 days if any deposit is unclaimed by the tenant, or if the tenant fails to cash the check for the deposit, the tenant forfeits his/her right to the deposit. It is the responsibility of the tenant to provide the landlord with a valid forwarding address.
Failure to Return Security Deposit as Required: If a landlord fails to return a security deposit by the 60-day timeframe, the landlord is required to pay double the tenant’s original deposit. A tenant may sue in Alabama’s Small Claims Court up to a maximum amount of $6,000.
Receipt: If deductions are made, a written itemized receipt must accompany the refund and shall serve to provide the tenant with the exact reasons that the landlord has withheld all or part of the security deposit. It should include the specific damage caused by the tenant and the estimated cost to repair.
Security Deposits and Tax Filing in Alabama
Whether a security deposit will be treated as taxable or not depends on if the deposit is used or returned.
Taxable Income: Security deposits are not automatically considered income upon collection at the beginning of tenancy. They only become taxable income when the landlord no longer has any obligation to refund them (such as for settling damages incurred). At this point they may also qualify as a write-off for tax purposes as well.
Reporting Security Deposit as Income: Whether or not security deposit should be reported as income and when to do so will depend on what it is being applied to or used as. Below are three simple rules the IRS has suggested:
- If the deposit is forfeited due to a breach of the lease or applied to unpaid rent, then the amount kept should be declared as income in the year it was forfeited or applied.
- If the security deposit is used to cover expenses that are chargeable to it, then the landlord should only include the part of the deposit used as income if the landlord includes the cost of repairs as expenses. If the landlord doesn’t include them as expenses as a matter of practice, then there’s no need to include the part of the deposit kept to cover them as income.
- There is an agreement between the parties to use the deposit or part of it as the final month’s rent, then the landlord should include it as income when the same is received.
Additional Rules & Regulations in Alabama
Receipt Requirement: A landlord or property manager in Alabama is not required to provide a written receipt to tenants for a security deposit.
Interest Payments: Alabama landlords are not required to pay a tenant interest on their security deposit. However, it can be done on a voluntary basis.
Applying Security Deposits as Last Month’s Rent: A tenant cannot use a security deposit to pay the last month’s rent. The deposit is normally used to cover the rent in the event that the tenant vacates early or damage caused by the tenant.
Fire or Casualty Damage: If the property is damaged or destroyed by a fire or casualty (not intentionally or negligently caused by the tenant), the landlord shall return the security deposit.
New Property Owners’ Responsibility: If the rental property is being sold, the buyer inherits the liability of refunding the tenant’s security deposit or prepaid rent to the tenant when the tenancy ends and is responsible for ensuring that all tenants’ security deposits are properly transferred to them.
For additional questions about security deposits in Alabama, please refer to the official state legislature, Alabama Code § 35-9A-201, for more information.