Security Deposits in Arizona

There are clear and specific statewide regulations that govern rental security deposits in the state of Arizona. Landlords and tenants should know and understand these laws. Landlords have the responsibility of adhering to the laws and staying in compliance. Tenants should know and understand their rights and responsibilities under the laws that govern security deposits.

The Purpose of a Security Deposit in Arizona

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.

Paying Interest on Security Deposits in Arizona

Arizona landlords are not required to pay interest on security deposits.

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. The written itemized list should highlight the reason for each deduction, the cost for each repair and the amount of the deposit being withheld. 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.

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 a Security Deposit in Arizona

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. 

Allowable Deductions from a Security Deposit in Arizona

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 Full Deposit Refunded in Arizona

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.

Security Deposits and Tax Filing in Arizona

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 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. 

“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.

Learn more about this here.

New Property Owner is Responsible for the Security Deposit in Arizona

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. 

Arizona Law on Security Deposits

If you are interested in learning more about up Arizona statutes on security deposits see Arizona Residential Landlord and Tenant Act: Chapter 2, Article 2 33-1321. Security deposits

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 months 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 found in Alabama Code §§ 35-9A-201 are the best source of reference when faced with questions related to security deposits. Landlords and tenants alike can benefit from knowing the laws that govern security deposits.