Security Deposits in Illinois

Landlords should familiarize themselves with the statewide regulations that govern security deposits in Illinois and understand their responsibilities.

Quick Facts for Illinois

  • Maximum Amount: No statutory limits set
  • Duration for Return: 30 days (with deductions) or 45 days (no deductions) from tenant moveout
  • Penalty for Failure to Return: Refund amount will be doubled
  • Interest Payment Requirement: For landlords who lease 25 or more units

Purpose of a Security Deposit

Security deposit functions as a safety net for landlords if they suffer financial losses that may be caused by damage to the rental property, unpaid rent or other breaches of the lease agreement. A security deposit ensures that landlords are compensated for losses and may also incentivize tenants to adhere to their lease obligations in order to have their security deposit returned at the end of their tenancy.

Allowable Security Deposit Charge in Illinois

Illinois doesn’t have a statutory limit on security deposit charges at the state level. Landlords are free to charge an amount he or she sees fit.

Security Deposit Rules & Regulations for Landlords in Illinois

  • Security Deposit Interest Payment: According to Illinois Security Deposit Interest Act (765 ILCS 715/1), landlords who lease 25 or more units in either a single building or a complex that are adjoined or adjacent to each other, who charge a security deposit are required to pay interest to a tenant on deposits that are held by the landlord for more than 6 months. The interest should be at a rate that is equal to the interest paid by the largest commercial bank in the State on minimum deposit passbook savings accounts. Landlords are required to pay any interest gained to the tenant within 30 days after the end of each 12-month rental period. This can be paid by cash or credit to be applied to rent owed. The tenant forfeits the right to any interest if he or she breaks the lease agreement. Any interest gained that remains unpaid should be turned over to the tenant at the end of the tenancy. Illinois Security Deposit Interest Act does not apply to public housing.
  • Allowable Deductions From Security Deposit: Landlords are allowed to make deductions for the following:
    • Rent owed
    • Damages not as a result of normal wear and tear
    • Cost for landlord labor after vacating the rental unit
    • Cleaning costs
    • Other costs associated with breach of lease agreement
  • Applying Security Deposit as Last Month’s Rent: A security deposit is not intended for use by the tenant as last month’s rent. The security deposit is not rent money and cannot simply be used to cover a tenants’ last month’s rent if the unit is vacated without payment. It’s meant to cover damages/losses suffered by the landlord and caused by the tenant.
  • How to Get a Full Refund: At the end of the tenancy, a full security deposit can be returned to the tenant if there is no damage to the rental property, rent is paid in full, and all charges in the rental agreement are covered.
  • New Owner’s Responsibility: If the property changes ownership, through sale, lease or transfer during the period of a tenant’s rental agreement, during the process the transferee is responsible for the tenant’s security deposit (765 ILCS 710/1.1). When the transfer is finalized and if the security deposit hasn’t been returned to the tenant and was transferred to the new buyer, that new buyer is responsible for returning the security deposit to the tenant at the end of the tenancy.
    Within 21 days of transferring the security deposit and receiving the name and address of the tenant, the new owner is required to post a written notice on the primary entrance of each rental unit stating that the new owner has acquired the security deposit tenant living in the unit (765 ILCS 710/1.2).

Returning Security Deposits in Illinois

The landlord is required to provide the tenant with a written notice of intent to keep all or a portion of the tenant’s security deposit, to be delivered postmarked mail to the tenant’s last known address or other address provided by the tenant, by personal delivery or by electronic mail to a verified email address provided by the tenant.

  • Time Frame: Under Illinois Security Deposit Return Act, landlords who own five or more rental units have two options for providing tenants with a refund of their security deposit:
    1. 30 Days: A landlord has 30 days from the date the tenant vacates the premises to return the security deposit if the landlord plans to make any deductions for payment of rent or damage to the premises. The notice must include an itemized statement of deductions, the actual or approximate cost of repairs/replacements, as well as paid receipts, or copies (765 ILCS 710/1 (a)). If the landlord uses his/her own labor to make repairs or replacements, he/she is allowed to provide the tenant with a reasonable estimate of the cost for the damage and provide paid receipts, or copies within 30 days from the date the statement of estimated cost was delivered to the tenant (765 ILCS 710/1 (a)).
      If the landlord is unable to provide the tenant with receipts for repairs or replacements, or copies, the landlord must provide an itemized list of the cost of repair or replacement, any other evidence the lessor has of the cost, and a verified statement of the lessor or the agent of the lessor detailing the specific reasons why the lessor is unable to produce the required receipts or copies  (765 ILCS 710/1 (b)).
    2. 45 Days: If there is no intent to make deductions for damage, a landlord has 45 days from the date the tenant vacates the rental unit to return the tenant’s full security deposit. A written notice is not required in this instance (765 ILCS 710/1 (a)).

  • Failure to Return Security Deposit: If an Illinois landlord failed to provide an itemized list of damages and the charges, has provided the list in bad faith, or has refused or failed to return the deposit that is due, within the required time period, the landlord is required to pay twice the amount of the original security deposit, along with any court costs and reasonable attorney’s fees.

“Normal Wear and Tear” vs. Damage

  • Normal wear and tear” is deterioration that occurs as a result of use for which the rental unit is intended and without negligence, carelessness, accident, or misuse or abuse of the premises or contents by the tenant or members of his household, or their invitees or guests.
    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, normal function of the rental unit. Pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures are all examples of damage.
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.

 

Security Deposits and Tax Filing in Illinois

A security deposit can either be held to cover losses suffered by the landlord or refunded to the tenant, all or in part. 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 : Security deposits are treated as either assets or liabilities when filing taxes. It is not automatically rental income when first received. Tenants shouldn’t deduct security deposits as expenses when filing their taxes and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant at the end of the tenancy. Security deposits are not income until they become as such.
  • Security Deposit Write-off : Usually, landlords cannot deduct security deposits when filing taxes as expenses before they are used for one purpose or another. If a landlord withholds part or all of the security deposit for unpaid rent, then that amount should be included as income for that year when filing taxes. Forfeited deposits should be declared as income on a landlord’s tax return. A deposit is taxable income only if and when a landlord has no obligation to refund the tenant.

The Law on Security Deposits in Illinois

Illinois’ security deposit law is found in Illinois Compiled Statutes §§ 765 ILCS 710, and 765 ILCS 715.

Tips for Illinois Landlords on the Right Practices for Security Deposits

  • Charge a reasonable amount for security deposits since there is no statutory limit established by law
  • Return security deposits within 30 or 45 days after the tenant vacates the premises, depending on whether an itemized statement and receipts will be provided to the tenant, a full deposit will be returned, or if the tenant disputes deductions withdrawn from the security deposit
  • Prepare to pay the tenant twice the amount of the original deposit if you fail to return the security deposit within the required time
  • Remember that a tenant is legally entitled to any interest gained on the security deposit
  • Withhold security deposits for any financial losses, damages or other expenses
  • Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant

Illinois security deposit law offer both landlord and tenants specific protections. Entering a lease agreement in Illinois requires a tenant to pay a security deposit established by the landlord. It’s an important part of the leasing process and is beneficial for landlords and tenants alike. Both tenants and landlords can protect their rights by having a level of awareness regarding the State’s security deposit law.

Make sure to refer to the Illinois Compiled Statutes §§ 765 ILCS 710 and 715. Landlords should educate themselves on this topic to protect their rental property and avoid any legal trouble.

Read more about other landlord tenant laws in Illinois

Read About Security Deposits in Other States

Arizona

Colorado

Delaware

Georgia

Hawaii

Idaho

Other Resources for Illinois Landlords & Tenants