- Standard Limit / Maximum Amount: No limits, except for mobile home parks (read more)
- What Can Be Deducted: Unpaid rent, cost of repairs & unpaid utilities or services rendered for the unit (read more)
- Time Limit for Return: 1 month or as provided in the lease (read more)
- Penalty if Not Returned on Time: 3 times the amount withheld and costs of suit (read more)
- Penalty for Failure to Provide a Written Statement of Deductions: Loss of the landlord’s right to the security deposit (read more)
Purpose. Security deposits are like safety nets. They ensure compensation for any loss that the landlord might incur because of the tenant’s acts. It covers for incidents like damage to the property, termination of the lease without notice or non-payment of rent.
Legal Basics. There is no limit on the amount of security deposit Colorado landlords can require. Unpaid rent, cost of repairs and unpaid utilities or services may be deducted from it. The security deposit must be returned within 1 month from the termination of the lease or within the time provided in the lease. Otherwise, the tenant may be entitled to three times the amount withheld, costs of suit and attorney’s fees.
Maximum Security Deposit Charge in Colorado
There is no limit on the amount of security deposit Colorado landlords can demand unless the lease or tenancy is for a mobile home space in a mobile home park. In such cases, the limit is one month’s rent, or two months’ rent if the mobile home is a multiwide unit.
Allowable Deductions on Security Deposits in Colorado
Colorado law does not give a definitive list of items the landlord can deduct from the tenant’s security deposit. Therefore, a landlord may be allowed to use the security deposit for almost all reasonable expenses that are connected to the tenancy or the premises.
The law also clarifies that the landlord is not prohibited from applying the security deposit or retaining it in case of the following:
- Unpaid rent;
- Unpaid utility bills;
- Cost of repairs to the unit;
- Unpaid cleaning services ; or
- Abandonment of the premises
The only thing the law specifically prohibits the landlords from using the security deposit for is for normal wear and tear.
- “Normal wear and tear” refers to deterioration of the property that happens when the property is used as it was meant to be used but only when that deterioration occurs without negligence, carelessness, accident, misuse, or abuse by the tenant or the people the tenant brings there. They are minor issues that occur naturally like aging and expected decline as a result of everyday living. These can include gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass, and dirty grout.
- “Damage,” on the other hand, refers to the destruction that occurs because of abuse or negligence by the tenant during the course of the tenancy. It diminishes the usefulness, value, or normal function of the rental unit. Some examples are pet damage (heavily stained and ripped carpet), 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.
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 to do so.
Returning Security Deposits in Colorado
Time Frame: Depending on the situation, there are 3 possible time frames for returning security deposits in Colorado:
- Within 1 month either from the termination of the lease or from the time the tenant gives the premises back to the landlord, whichever happens later unless the lease provides for a longer period;
- Within the period provided in the lease, which cannot exceed 60 days; or
- Within 72 hours from the time the tenant vacates the premises, if the termination is due to the landlord’s failure to repair gas appliances or other equipment that has been found to be in hazardous condition within the time allowed after being given proper notice.
Manner of returning the deposit: The landlord can return the deposit and deliver the notice for deductions in any reasonable manner for as long as the tenant gets it. But if there isn’t a more practical way the landlord is considered to have fulfilled this obligation if the security deposit is sent by mail, together with the written statement of deductions, to the last known address of the tenant within the applicable time frame.
Failure to Return Security Deposit as Required: The consequences of the landlord falling short in his duties in returning the security deposit differs:
- If the written statement of the deductions is not provided within the allowed time, the landlord forfeits all rights to retain or use the security deposit or any part of it;
- If the security deposit or what’s left of it is not returned on time, the landlord may be made to pay up to 3 times the amount withheld plus reasonable costs of the suit; and
- If the termination of the lease was due to the landlord’s failure to repair gas appliances or equipment as mentioned above and the landlord fails to return the security deposit within the allowed time, the tenant may get twice the amount of deposit plus reasonable attorney’s fees.
Security Deposits and Tax Filing in Colorado
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 Colorado
Receipt Requirements: The landlord is not required to provide a receipt for security deposits in Colorado.
Interest Payments: Colorado has no laws requiring landlords to place security deposits in an account or to pay interest on the same.
New Property Owner’s Responsibility: If the premises are sold during the lease period, the landlord will only be relieved of the duties related to the security deposit discussed above when the landlord either:
Transfers it to the new owner and notifies the tenant of the same; or
Returns it to the tenant.
In both cases, the landlord can make the allowed deductions before parting with the security deposit. If the landlord transfers the security deposit to the new buyer, the latter inherits the liability of refunding the tenant’s security deposit when the lease ends.
Frequently Asked Questions
How much can a landlord charge for a security deposit in Colorado?
There is no maximum security deposit a landlord can charge in Colorado. Colorado law on security deposits does not currently put a limit on the amount of security deposit. However, counties and cities can impose a limit, so it is best to check the local ordinances to be sure.
Can you use the security deposit as last month’s rent in Colorado?
In Colorado, a tenant is not usually allowed to use the security deposit as last month’s rent. However, if there is an agreement between the landlord and the tenant to use the security deposit for last month’s rent, then the tenant can do so.
What can a landlord deduct from a security deposit in Colorado?
A landlord in Colorado can legally deduct the following from the security deposit: unpaid rent, utility bills, repairs to the unit, cleaning services and penalty for the abandonment of the premises.
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 Colorado?
In Colorado, 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 Colorado?
Normal wear and tear in Colorado is defined as the deterioration which occurs, based on the use for which the rental unit is intended, without negligence, carelessness, accident, or abuse of the premises or equipment or chattels by the tenant or members of his household, or their invitees or guests
How long does a landlord have to return the security deposit in Colorado?
In Colorado, a landlord has 1 month from the move out date to return the security deposit. However, the parties can put a different period in the lease agreement as long as it is not more than 60 days.
If the lease was terminated early due to the landlord’s failure to repair gas appliances or other equipment that has been found to be in hazardous condition, the landlord must return the security deposit within 72 hours from the tenant’s move out.
What happens if a landlord does not return the security deposit in Colorado?
If a landlord in Colorado does not return the security deposit within 1 month from the move out date or as provided in the lease, the landlord loses the right to make any deductions and may be liable for a penalty of 3 times the amount withheld plus costs of suit.
If the lease was terminated due to the landlord’s failure to repair gas appliances or other equipment that has been found to be in hazardous condition, the penalty will only be 2 times the amount withheld.
Are security deposits taxable in Colorado?
Security deposits in Colorado 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 Colorado, please refer to the official state legislation, Colorado Revised Statutes § 38-12-101 to § 38-12-104 and § 38-12-207, for more information.