- Standard Limit / Maximum Amount: 1 month’s rent (read more)
- What Can Be Deducted: Rent owed & excessive damage (read more)
- Time Limit for Return: Landlord has 60 days after end of lease (read more)
- Penalty if Not Returned in 60 Days: Double the original deposit (read more)
- Tenant’s Deadline to Claim Funds: 90 days (read more)
Purpose. Security deposits are used to ensure a landlord is compensated, at least in part, for any loss that the tenant is responsible for, such as unpaid rent or property damage above normal wear and tear. Alabama state laws help to govern the exchange of security deposits between tenants and landlords.
Legal Basics. According to Alabama security deposit law, a landlord can charge up to 1 month’s rent. At the end of the lease, the landlord has 60 days to return it (or pay double the original deposit if after), and may only deduct for rent accrued and damages in excess of normal wear and tear.
Maximum Security Deposit Charge in Alabama
Alabama law establishes that landlords cannot require or collect an amount in security deposit that exceeds the cost of one month’s rent. However, there are exceptions to which this limitation is not applicable. This doesn’t cover deposits for pets, any modifications to the premises, or anything that could increase liability risks to the landlord or premises.
Allowable Deductions on Security Deposits in Alabama
A landlord can withhold all or a portion of the security deposit for one of only two reasons: rent owed or damages in excess of normal wear and tear.
Below, we compare the difference between “Normal Wear and Tear” and Damage.
- “Normal wear and tear” refer to minor issues that occur naturally as a result of the tenant using the property as it’s designed to be used, aging, and expected decline as a result of everyday living. These minor issues can include gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass, and dirty grout and even mold.
- “Damage” refers to the destruction that is a result of abuse, negligence or carelessness by a tenant during the tenancy period. Damage to the rental property can negatively impact its usefulness, value, normal function. Damage can include pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures.
Check out our article on wear and tear vs. damage to get a better idea of the difference.
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: Landlords are required to refund security deposits within a specific 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.
No valid mailing address: In the instance that the tenant fails to provide a valid forwarding address, the landlord is required to deliver the deposit and/or 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.
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.
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.
Receipt: if deductions are made, an itemized written receipt must accompany the refund and serves 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
Depending on whether or not a landlord retains or refunds the security deposit will determine how it’s treated for tax purposes.
- Accounting for Security Deposits: Security deposits are treated as either assets or liabilities. It is not automatically rental income. Tenants shouldn’t treat the security deposit as expenses and landlords shouldn’t declare them as income until they become such.
- Security Deposit Write-off: Typically, landlords cannot deduct security deposits as expenses until they are used, all or in part. If a landlord withholds part or all of the security deposit because the tenant breaks the lease by vacating the property early without paying the rent, that amount can be included in your income in that year on your tax return.
Additional Rules & Regulations in Alabama
- Receipt Requirement: A landlord or property manager 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.
- 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.