- Standard Limit / Maximum Amount: 2 months’ rent, 3 months’ if furnished (read more)
- What Can Be Deducted: Unpaid rent, and costs of repairs, cleaning, and restoration (read more)
- Time Limit for Return: 21 days after the tenant moves out (read more)
- Penalty if Not Returned on Time: The amount of security deposit, plus twice that amount if the landlord was in bad faith (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. In California, the purpose of security deposits is to reimburse the landlord for costs related with processing a new tenant, advance rent payment, to cover unpaid rent, cost of repairs of damage beyond ordinary wear and tear, and the cost incurred due to breach of the lease agreement.
Legal Basics. California landlords can demand a maximum of 2 months’ rent (3 months’ if the unit is furnished) as security deposit from which unpaid rent, and costs of repairs, cleaning and restoration may be deducted. It must be returned within 21 days after the tenant moves out. Otherwise, the landlord may be made to pay a penalty of double the deposit.
Maximum Security Deposit Charge in California
The maximum amount California landlords can charge as security deposit is the equivalent of 2 months’ rent for unfurnished residential units or 3 months’ rent for furnished ones. However, if the tenant is an active service member, then the limit is one month lower for both cases: 1 month’s rent for unfurnished units and 2 months’ rent for furnished units. As an exception to the exception, the lower limit will not apply even if the tenant is an active service member if:
- The tenant has a history of poor credit or of causing damage to property rented
- The lease is shared by a group of people and has at least 1 member that is not a spouse, domestic partner, parent or dependent of the service member
If one or both of the two instances above are true, then the usual higher limit will apply.
Exceptions to the Limit
Notwithstanding the limit, California landlords can charge more security deposit in the following situations:
- The landlord may charge more for alterations to the rental unit (apart from those cleaning and repairs costs charged to the previous tenant) that the tenant and the landlord have mutually agreed on.
- The landlord may require advance payment of six months’ rent or more if the term of the lease is 6 months or longer.
Also, the limits and the other rules on holding, using and returning the security deposit discussed below only apply to rental agreements for residential units. They do not apply to the following:
- Rent or lease of commercial real property, in which case there is no limit to the security deposit,
- Mobile Home Spaces, in which case the limit is one months’ rent
Allowable Deductions on Security Deposits in California
The landlord can deduct from the tenant’s security deposit amounts that are reasonably necessary for the following purposes:
- Unpaid rent
- Cost of repairs for damage caused by the tenant
- Cleaning costs when the tenant vacates the property (only for leases started after January 1, 2003)
- Restoration costs that are provided for under the rental agreement
However, even if they fall under any of the above, the landlord cannot deduct the following from the security deposit:
- Cost of repairs for damage that existed before the tenancy was started
- Cost of repairs or restoration for ordinary wear and tear
- Cost of repairs or restoration for damage caused by cumulative effects of wear and tear, even if it is beyond what is “usual” for wear and tear. (e.g. accumulated wax build-up on a surface, total failure of an appliance due to deterioration over time.)
“Normal Wear and Tear” vs. “Damage” in California
- “Normal wear and tear” refer to minor issues that occur naturally as a result of the tenant using the property as it was designed to be used. These minor issues can include gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass, dirty grout and even mold.
- “Damage” refers to the destruction that is a result of abuse or negligence by a tenant during the tenancy period. Damage to the rental property negatively impacts its usefulness, value, or normal function. It can include pet damage (heavily stained and ripped carpets), broken tiles, holes 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.
Can the deposit be used by the tenant as last month’s rent? Not usually, but it can be done if there is a written agreement between the parties specifically allowing the tenant to do so.
Returning Security Deposits in California
Time Frame: The California landlord has 21 calendar days after the tenant has moved out of the rental property to return the tenant’s security deposit, or what’s left of it. However, the landlord cannot be made to return the security deposit earlier than:
- 60 days before the end of the term of a lease that has a definite term
- The last day to give notice to comply with the required minimum number of day’s notice for termination, for leases or rentals without a fixed term, specifically:
- If the Tenant is terminating the lease:
- For month to month rentals with no fixed term, 30 days before the desired date of termination
- For other rentals with no fixed term, the number of days’ notice the parties agreed on or, if the parties have no such agreement, the length of the period in which the rent is charged (e.g. weekly, every 2 weeks, every 10 days, etc). But in either case, never less than 7 days or more than 30 days, before the proposed termination date
- If the landlord wants to terminate a lease with no fixed term:
- 60 days before the proposed termination date if the tenancy has lasted at least a year
- 30 days before the proposed termination date if the tenant has rented for less than a year.
- If the Tenant is terminating the lease:
Itemized List of Charges: If there are deductions on the security deposit, the landlord is required to inform the tenant of the basis and cost of the same in an itemized list on a written notice to delivered personally or via first-class mail with prepaid postage, together with the remaining amount to be returned within the same timeframe. If the tenant did not provide a forwarding address, the landlord only has to mail it to the address of the vacated unit. However, the landlord and tenant have the option of the sending of the itemized list via e-mail, and/or paying the security deposit, or the remainder, by depositing the same in a bank account.
Copies of documents showing the cost of deductions must also be mailed with the itemized list, these can be receipts for supplies purchased, the bill for services contracted, or a description of the work done if the landlord’s employees did the work.
If the landlord is not able to provide these documents because they cannot be obtained by the landlord within the 21 days or the repairs cannot be completed within the same time, the landlord can give a reasonable estimate of the costs, and indicate the same and the basis therefor on the list. If the reason for not providing the documentation is because they are with another person or company, the landlord may include the contact details of the same on the itemized list. The landlord must provide the tenant with the exact costs and the documentation for them within 14 days after the work is completed or after the landlord gets the documentation.
Exception: The landlord will not need to comply with the above rules on providing an itemized list if either:
- The deductions are not more than $125; or
- The tenant waives rights under them in writing delivered with the tenant’s notice of termination.
However, if the tenant requests documentation, the landlord must provide the itemized list as required within 14 days of the request, notwithstanding 1 or 2 above.
Failure to Return Security Deposit as Required: If the landlord does not return the deposit, the tenant may sue for the recovery of the same in Small Claims Court, which proves to be easier, faster and cheaper than suing in regular courts. Also, if the landlord is found to have acted unreasonably in withholding the amount or in “bad faith”, the landlord may be made to pay 2 times the security deposit in damages, in addition to returning the amount originally withheld.
Security Deposits and Tax Filing in California
How the security deposit will be treated tax-wise depends on whether or not the landlord gets to keep it (or part of it).
Taxable income: Security deposits are not automatically considered income when the landlord receives them. The IRS advises to not include security deposits as income if the landlord may still be required to return the same. They only become taxable income when the landlord no longer has any obligation to refund them. For example, if the security deposit was given in 2019 but was only forfeited in 2020, then the landlord should only include it as income in 2020.
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 3 simple rules the IRS has suggested to follow:
- 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.
- If 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 California
Initial Inspection: In California, tenants are entitled to an initial inspection so that they may be able to identify and fix damage in the unit to avoid or minimize deductions on their security deposit. Thus, the landlord is required to inform the tenant of the latter’s option to have an initial inspection of the unit within a reasonable time, but not earlier than 2 weeks from the termination of the lease. The tenant may choose to skip the initial inspection but if the tenant opts to have an initial inspection, the landlord is required to provide the tenant with an itemized statement of the repairs and cleanings the landlord intends to deduct from the security deposit. Note that the landlord is only allowed to include repairs and cleanings that are beyond normal wear and tear. The tenant may choose to rectify those identified in the statement but is not required to. However, the landlord can still deduct from the security the cost of redoing the cleaning and repairs even if the tenant had done the same if they are still reasonably necessary.
Interest Payments: California State laws do not require landlords to pay interest on security deposits. However, several cities within California that do. Some of them specify the interest rates, specifically, Los Angeles, West Hollywood and San Francisco. Getting in touch with the city’s rent control board will be the best way to find out if interest payments on security deposits are required in a city.
Non-Refundable Security Deposits: Security Deposits in California are always subject to refunds. California law prohibits charging non-refundable deposits. The landlord will always have to return the security deposit or the part of it was not used to cover allowable deductions.
New Property Owner’s Responsibility: If the landlord sells or otherwise transfers his ownership over the rental unit during the lease, the landlord can either:
- Transfer the security deposit, or what is left of it, to the new owner and inform the tenant of such transfer and the details of the new owner (name, address and phone numbers). The landlord may do so by personal delivery or first-class mail with prepaid postage. If the landlord notifies the tenant by personal delivery, the landlord needs to get an acknowledgment receipt signed by the tenant. Upon doing so, the old landlord’s rights and responsibilities concerning the security deposit will be transferred to the new owner; or
- Return the security deposit to the tenant as the landlord would at the end of the tenancy. The landlord must make the allowable deductions and give the required notices and documentation within the number of days allowed after the termination of the tenancy, except that the days will be counted from the date of sale or transfer of the property.
However, the landlord must decide on the above before selling the property and inform the buyer, who will be the new owner, of the same. Prior to the sale, the landlord must provide the new owner with a written statement containing the following information:
- How much of the security deposit is left after deductions;
- Itemized list of deductions made; and
- Which one of the 2 options above the landlord has decided to take.
Failure to do the above will make the landlord and the new buyer jointly and severally liable for the returning the security deposit to the tenant, or what is left of it, at the end of the lease. This means the tenant may recover the full amount that the tenant is entitled to from either one of the 2, collect the balance from the other if the first one does not pay in full, or collect from both of them at the same time.
Frequently Asked Questions
How much can a landlord charge for a security deposit in California?
The maximum security deposit a landlord can charge in California is 2 month’s rent for unfurnished units and 3 month’s rent for furnished units. However, if the tenant is an active service member, the limit goes down to 1 month’s rent for unfurnished units and 2 months for furnished ones.
Can you use the security deposit as last month’s rent in California?
In California, a tenant isn’t allowed to use the security deposit as last month’s rent. Unless the tenant has an agreement with the landlord to do so, the tenant cannot withhold payment to force the landlord to use the security deposit to cover the last month’s rent.
What can a landlord deduct from a security deposit in California?
A landlord in California can legally deduct the following from the security deposit: unpaid rent and cost of repairs, cleaning, and restoration. However, repairs and restorations are not chargeable against the security deposit if they are for that damage was caused by normal wear and tear, or existed before the tenant moved in.
Can a landlord charge a cleaning fee in California?
In California, a landlord is allowed to charge a cleaning fee. This should cover the costs of cleaning services to bring the unit back to the same level of cleanliness it was in when the tenancy started.
What is considered normal wear and tear in California?
Normal wear and tear in California is defined as a matter of case law or practice. The statutes do not specifically provide a definition but generally, it is deterioration that occurs naturally as a result of the tenant using the property as it’s designed to be used without fault or negligence from the tenant.
How long does a landlord have to return the security deposit in California?
In California, a landlord has 21 days from the move out date to return the security deposit. However, the landlord cannot be made to return the deposit earlier than 60 days before the end of a fixed-term lease or before the minimum number of days notice to terminate a lease with no fixed term.
What happens if a landlord does not return the security deposit in California?
If a landlord in California does not return the security deposit within 21 days from the move out date, the landlord may be liable for a penalty of 2 times the security deposit on top of the amount withheld. That means the landlord may be made to pay up to 3 times the security deposit.
To recover the security deposit, the tenant may sue the landlord in Small Claims Court, which proves to be easier, faster and cheaper than suing in regular courts.
Are security deposits taxable in California?
Security deposits in California aren’t taxable until they become the landlord’s property. This happens when the security deposit is applied to rent, forfeited, or applied to charges allowed under the lease.
However, when they are used to cover expenses incurred by the landlord due to the tenant’s fault, like the cost of repairs or unpaid utilities, they are not always taxable. The IRS advises to only report them as income if the landlord also reports the costs they covered as expenses. Otherwise, there is no need to report them as income, in which case they will not be taxed.
For additional questions about security deposits in California, please refer to the official state legislation, California Civil Code § 1950.5 and § 1940.5, for more information.