- Standard Limit / Maximum Amount: 2 months’ rent; 1 month’s rent for tenants aged 62 & over
- What Can Be Deducted: Unpaid rent & cost of damages due to the tenant’s fault (read more)
- Time Limit for Return: 30 days after the end of lease or 15 days after receipt of the tenant’s forwarding address (read more)
- Penalty if Not Returned on Times: Double the original deposit (read more)
- Minimum Interest Rate: 0.15% (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. According to Connecticut security deposit law, a landlord can charge up to 2 months’ rent for tenants below 62 years old or 1 month’s rent if 62 and older. The landlord has 30 days after the end of the lease or 15 days after receipt of a forwarding address, to return it plus interest (or pay double the original deposit if after). The landlord may only deduct unpaid rent and damages in excess of normal wear and tear from the security deposit.
Maximum Security Deposit Charge in Connecticut
In Connecticut, the maximum amount landlords can charge as security deposit is 2 months’ rent unless the tenant is 62 years old or older, in which case the limit is 1 month’s rent. If the tenant turns 62 after paying a security deposit that’s more than one month’s rent, the tenant has the right to a refund of the excess upon request.
Security Deposit Holdings in Connecticut
Landlords are required to promptly place the security deposit into one or more escrow accounts in a financial institution for the tenant’s benefit. The landlord is not allowed to withdraw funds from the escrow account except to do the following:
- To return the security deposit or part of it to the tenant;
- To give the tenant interest that has accrued to the security deposit
- To transfer the security deposit to the new owner of the property
- To take interest that the tenant is not entitled to
- To pay for costs chargeable to the security deposit
- To transfer the security deposit into a different escrow account.
The Landlord is required to give the tenant a written notice containing the details of the escrow account within 30 days of receiving the security deposit. Any person who takes over the landlords interest in the rented property, like the buyer of the property who becomes the new landlord or a receiver, is also required to give this notice within the same amount of time from the receipt of the security deposit from the landlord.
If the rented property is sold during the lease, the landlord must withdraw the security deposit pertaining to the tenant of that property and deliver it to the buyer who must then comply with the rules in holding security deposit in Connecticut as if it was the original landlord.
Failure to comply with the rules on placing the security deposit in an escrow account and maintaining the same may mean a fine of up to $500 and/or imprisonment of not more than 30 days for each instance of noncompliance.
Allowable Deductions on Security Deposits in Connecticut
A Connecticut landlord may deduct from the security deposit cost of any damages or injury suffered by the landlord due to the tenant’s fault. These costs may include the following:
- Unpaid rent
- Unpaid utility bills
- Payment for property damage in excess of normal wear and tear (read more)
- The cost of damage caused by the tenant’s failure to comply with obligations as a tenant (read more)
To clarify, the landlord is not always allowed to use the security deposit to cover repairs for damage caused by the tenant. Two things must be met before the landlord may do so:
- The damage must not be due to normal wear and tear (read more);
- The cause of the damage must be the tenant’s failure to comply with obligations under the Connecticut Statutes (read more).
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.
“Normal Wear and Tear” vs. Damage
- “Normal wear and tear” is deterioration that occurs from the intended use of the rental property and without negligence, carelessness, accident, misuse, or abuse of the premises or contents by the tenant, or invitees or guests of the tenant. It can include minor issues, such as gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass and dirty grout that occur naturally as a result of the tenant using the property as it’s designed to be used.
- “Damage” refers to destruction to the rental unit that occurs because of abuse or negligence by a tenant during the course of the tenancy and can affect usefulness, value and normal function of the rental unit. Pet damage (heavily stained and ripped carpets), broken tiles, holes in the wall, broken windows and missing fixtures are all examples of damage.
The landlord can only charge the cost of repairs if the damage was caused by the failure of the tenant to comply with specific obligations. To comply with positive obligations under the said rule, the tenant must:
- Comply with rules and regulations of applicable building, housing or fire codes on health and safety;
- Keep the premises, including all plumbing fixtures, clean and safe; Dispose of garbage and other waste in a clean and safe manner;
- Use all facilities (e.g. electrical, plumbing, heating, etc.) and appliances reasonably;
The rest of the tenant’s obligations under the same law consist of not doing some things, specifically those enumerated below. The tenant must not:
- Destroy, damage, or remove parts of the premises;
- Unreasonably disturb the neighbor’s peaceful enjoyment of the premises.
If the damage to the premises was caused by the tenant’s failure to comply with any of the above, then the landlord may take the cost of repairing it from the security deposit.
Returning Security Deposits in Connecticut
Time Frame: The landlord has 30 days from the termination of the lease or 15 days after receiving written notification of the tenant’s forwarding address, whichever comes later, to return the security deposit, or what’s left of it after deductions, and the interest accrued.
Failure to Return Security Deposit on Time: If the landlord fails to return the security deposit and give an itemized list of deductions within the time allowed, the landlord may be liable for twice the amount of security deposit the tenant paid. The landlord may also be subjected to a fine of up to $250.
Failure to Pay the Tenant Interest on Time: If the landlord is able to give the security deposit and itemized list of deductions, and only fails to pay the tenant the interest that accrued to the latter, then the landlord will only be liable for $10 or twice the amount of interest the landlord failed to pay, whichever is greater.
Security Deposits and Tax Filing in Connecticut
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 Connecticut
Interest on Security Deposit: Connecticut landlords are required to pay interest on security deposits received. The interest rate on security deposits is determined by the Banking Commissioner every year. For the year 2020, the interest rate is 15%. The tenant is not entitled to interest for the months wherein the tenant is late in paying the rent for more than 10 days.
Payment of Interest: The interest on the security deposit is payable on the anniversary date of the lease every year. The landlord can choose to either pay the tenant the interest that the latter is entitled to or credit it to the next month’s rent.
Providing a Forwarding Address: Upon the termination of the tenancy, the tenant may notify the landlord of a forwarding address, to where the landlord can mail or pay the security deposit, interest and written notice of deductions.
New Property Owner’s Responsibility: If the rental property is sold while the lease subsists, the buyer inherits the previous owner’s obligation to refund the tenant’s security deposit when the lease ends. Therefore, the buyer should make sure to procure the security deposit and the proper accounting for the same from the previous owner.
For additional questions about security deposits in Connecticut, please refer to the official state legislation, Connecticut General Statutes § 47a-21 to § 47a-21 to 22a, for more information.