There are clear and specific statewide regulations that govern rental security deposits in the state of Arizona. Landlords should familiarize themselves with these laws and understand their responsibilities.
Quick Facts for Arizona
- Maximum Amount: Cannot exceed one and one-half month’s rent
- Duration for Return: 14 business days from end of lease
- Penalty for Late Returns: Refund amount will be doubled, plus damages
Purpose of a Security Deposit
A security deposit serves to ensure that a landlord is compensated, at least in part, for any loss, if a tenant causes any damage to the rental property beyond ordinary wear and tear, or vacates the rental property without notice and first paying delinquent rent. It’s a kind of insurance against losses caused by tenants.
Allowable Security Deposit Charge in Arizona
Arizona Code §§ 33-1321(A) establishes that landlords cannot charge tenants security deposits, including, but not limited to, prepaid rent that is more than one and one-half month’s rent. However, a tenant can voluntarily pay more than one and one-half month’s rent in advance.
Security Deposit Rules & Regulations for Landlords in Arizona
- Interest Payments: Arizona landlords are not required to pay interest on security deposits.
- Allowable Deductions: A landlord may deduct from the security deposit the following:
- Payment of all rent owed by the tenant (subject to the landlord’s duty to mitigate future losses)
- The amount to repair any damage caused to the rental property by the tenant
- Other loss incurred by the landlord due to the tenant’s refusal to carry out leasing obligations (eg. cleaning, pet damage, removal of personal items), and all other charges as specified in the signed lease agreement.
- Applying Security Deposits as Last Month’s Rent in Arizona: A tenant cannot simply decide to apply a security deposit to the last month’s rent. Only the landlord can agree to apply the security deposit to the payment of all rent.
- How to Get a Full Refund: After the termination of the tenancy, tenants can get their full security deposit returned if there is no damage to the property, rent is paid in full, and all charges in the lease agreement are covered. Note that nonrefundable fees or deposits should be stated explicitly in writing by the landlord, explaining the purpose of the non-refundable deposit or fee.
- New Property Owner’s Responsibility: 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 Arizona
In Arizona, landlords are required to return security deposits by first-class mail to the last known place of residence of the tenant, unless the tenant has made other arrangements with the landlord in writing. The landlord must provide the tenant with an itemized list of all deductions, along with the amount due and the portion of the security deposit being returned to the tenant, if any. Tenants are required to provide the landlord with a written request for return of security deposits, a written notice of intent to vacate, and request for a move-out inspection date.
The written itemized list should highlight the reason for each deduction, the cost for each repair and the amount of the deposit being withheld.
- Time Frame: Arizona Code §§ 33-1321 (D) establishes that landlords in Arizona have 14 business days, excluding Saturdays, Sundays or other legal holidays, after tenancy has been terminated to return a tenant’s security. The countdown begins once the tenant deliver the written notice of the move-out date.
- Failure to Return Security Deposit as Required: If an Arizona landlord fails to return the security deposit within the required timeframe, tenants can get a refund that is double the amount of the original security deposit, along with any damages awarded by the court, which may include lawyer and court fees.
This rule doesn’t apply to the landlord’s employees, such as a property manager and maintenance individuals who are entitled to a compensation package that includes onsite living and occupancy.
Withholding Security Deposits in Arizona
Arizona Code §§ 33-1321 (D) maintain that landlords can withhold tenant’s security deposit, or a portion of the deposit for rent owed, damage to the rental property and any damages that the landlord has suffered as a result of a breach of the lease agreement. The landlord is required to provide the tenant with an itemized list of all deductions and the amount due and the remaining security deposit, if any.
“Normal Wear and Tear” vs. Damage in Arizona
- “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 and aging. 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 destruction that is a result of abuse or negligence 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.
Security Deposits and Tax Filing in Arizona
How security deposits are treated for tax purposes depends on whether or not a landlord retains or provide the tenant with a refund when the lease is terminated.
- Accounting for Security Deposits in Arizona: Security deposits are treated as either assets or liabilities. It is not automatically rental income. Tenants shouldn’t deduct security deposit as expenses and landlords shouldn’t declare them as income until they become such. Security deposits are not income when in escrow to be refunded to the tenant, only if and after, a portion, or all is withheld for losses.
- Security Deposit Write-off in Arizona: Typically, landlords cannot deduct security deposits as expenses when filing taxes 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 the income in that year on the tax return. Forfeited deposits should be included on the tax return as income.
Tips for Arizona Landlords on the Right Practices for Security Deposits
- Do not charge a security deposit that is more than one and a half month’s rent
- Return security deposits by first-class mail within 14 business days after tenancy termination with an itemized written statement of any deductions
- Prepare to pay twice the amount of the original security deposit if you fail to return the security deposit within the required timeframe
- Withhold security deposits for rent owed and damages
Arizona’s deposit laws are found in Arizona Residential Landlord and Tenant Act: Chapter 2, Article 2 33-1321. Landlords and tenants alike can benefit from knowing the laws that govern security deposits.