Security Deposits in Alabama

Landlords should familiarize themselves with the statewide regulations that govern security deposits in Alabama and understand their responsibilities.

Quick Facts for Alabama

  • Maximum Amount: Cannot exceed 1 month’s rent
  • Duration for Return: 60 days after end of lease
  • Penalty for Late Returns: Refund amount will be doubled
  • Deadline to Claim Funds: 90 days; after this, tenants forfeit their right to a refund

Purpose of a Security Deposit

A security deposit first indicates to the landlord in the initial stage of a rental agreement that the tenant is serious about renting the unit and assures the tenant that the unit is being held for their occupancy. More importantly, security deposits serves to ensure that a landlord is compensated, at least in part, for any loss, if a tenant is responsible for any damage to the rental property beyond ordinary wear and tear, or vacates the unit without notice and first paying delinquent rent.

Allowable Security Deposit Charge in Alabama

Alabama Code §§ 35-9A-201 (a) 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.

Security Deposit Rules & Regulations for Landlords 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
  • Allowable Tax Deductions: Alabama landlords can deduct the following from security deposits as established by Alabama Code §§ 35-9A-201 (b): the payment of accrued rent and/or the amount of damages suffered by reason of the tenant’s noncompliance due to negligence and abuse
  • 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.
  • How to Get a Full Refund: A tenant can get their full deposit back if there is no damage to the property and if no rent is owed.
  • 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.

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. An itemized written statement should 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.

EXAMPLE

If tenant damage is the reason that the security deposit is being withheld, in part or full, the written statement should highlight the specific damage caused by the tenant and the estimated repair cost.

    • Time Frame: Landlords are required to refund security deposits within a specific time frame. According to Alabama Code §§ 35-9A-201 (b), landlords have 60 days after lease termination and delivery of possession to deliver the refunded security deposit in full or a partial amount after any deductions, along with an itemized notice of damages and the amount withheld. 

    • 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. 

    • Unclaimed Deposits: Alabama Code §§ 35-9A-201 (d) establishes that 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. See Alabama Code §§ 35-9A-201 (c).

 

Withholding Security Deposit in Alabama

A landlord can withhold the security deposit or a portion of the deposit for the following two reasons as established by Alabama Code §§ 35-9A-201 (b):

  • Rent owed 
  • Damages resulting from the tenant’s noncompliance with maintaining the rental unit. Damage to the property has to be in excess of normal wear and tear. 

“Normal Wear and Tear” vs. Damage in Alabama

  • “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 and visit our state laws page to learn more about other landlord-tenant responsibilities.

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.

The Law on Security Deposits in Alabama

Chapter 9A — Uniform Residential Landlord and Tenant Act: Section 35-9A-201 Security deposits; prepaid rent. Alabama Code §§ 35-9A-201 outlines the texts that govern the security deposit in the state of Alabama.

Tips for Alabama Landlords on the Right Practices for Security Deposits

  • Never ask for more security deposit that exceeds one month’s rent
  • Return a tenant’s security deposit by first-class mail with an itemized written statement of any deductions
  • Deliver refund within 60 days of lease termination
  • Payment is double the original security deposit if the refund is not delivered within the 60-day time period
  • Know that you can withhold security deposits for rent owed and damages

If you follow these rules and remember to meet deadlines, then you should have no problem handling security deposits for your rental property in Alabama.

Make sure to refer to the Alabama Code §§ 35-9A-201 for more on security deposits. Landlords should educate themselves on this topic to protect their rental property and avoid any legal toruble.