Iowa Security Deposit Law

Last Updated: September 20, 2021 by Elizabeth Souza

QUICK FACTS
  • Standard Limit / Maximum Amount: Two months’ rent (read more)
  • Security Deposit Withholding: Wrongfully quitting tenants without proper notice or tenants who don’t provide a valid mailing address within a year of termination of tenancy may forfeit the full deposit (read more)
  • What Can Be Deducted: Unpaid rent, cost of damage to the unit, cost of re-leasing if property is wrongfully quit (read more)
  • Time Limit for Return: 30 days after the end of the lease (read more)
  • Penalty if Not Returned on Time: Forfeiture of right to retain any portion of the deposit, and up to two (2) times the amount of the security deposit if withheld in bad faith (read more)

Purpose. Security deposits are used to protect landlords from financial loss due to negligent use of the rental property that results in tangible damages that exceed expected wear from standard usage. In most cases, the terms for making deductions from this deposit should be included in the lease agreement, especially if they include more than standard damage to the property such as unpaid utility bills.

Questions? To chat with an Iowa landlord tenant attorney, Click here

Legal Basics. Iowa landlords can collect up to two months’ rent as a security deposit, which is to be used for deductions relating to damages incurred during tenancy. It must be returned within 30 days of lease termination unless the tenant fails to provide a mailing address to send the security deposit to within a year of termination, otherwise the landlord will forfeit the right to collect a deposit and may be charged up to two times the security deposit (plus applicable court fees) if willfully neglectful in its return.

Maximum Security Deposit Charge in Iowa

In Iowa, landlords cannot charge tenant a security deposit that is more than two months’ rent.

Additional Pet Deposits: Under Iowa’s law, the landlord may ask for an additional pet deposit; however, people with disabilities who use service animals are entitled to full and equal access to housing. Thus, the tenant may not be discriminated against and the landlord may not require the tenant to pay extra to have a service animal. If the service animal causes damage to the rental unit, the tenant is liable to pay for any damages.

The Federal Fair Housing Act requires housing facilities to allow tenants who use service dogs and emotional support animals to have an equal opportunity to use and enjoy their home.

Security Deposit Withholding in Iowa

In some cases, a landlord is able to withhold the entire security deposit without itemized deductions or returning any portion of the security deposit. If the tenant unlawfully quits the property at any point during the lease, the security deposit may be retained to help pay for re-leasing services and any damages that need to be addressed. Iowa landlords may also retain the security deposit if the tenant does not provide a mailing address within one year of lease termination where the funds may be returned to.

Allowable Deductions on Security Deposits in Iowa

The landlord may use the security deposit to make deductions only after the tenant has vacated the premises. The security deposit should be used to cover:

  1. Unpaid rent;
  2. Unpaid funds pursuant to the rental agreement (e.g. utility bills, etc);
  3. Costs to recover any expenses incurred in acquiring possessions of the dwelling unit from the tenant who did not act in good faith to surrender and vacate the unit; and
  4. Costs of damage caused by the tenant’s failure to comply with obligations as a tenant but not those considered to be standard wear and tear.

Can the deposit be used by the tenant as last month’s rent?
Only if both parties agree in the lease agreement. Otherwise, the security deposit should be handled separately from any rent balance left outstanding.

“Normal Wear and Tear” vs. Damage in Iowa

  • “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.

Tenant’s Obligations

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:

  1. Keep the premises, including all plumbing fixtures, clean and safe;
  2. Dispose of garbage and other waste in a clean and safe manner;
  3. Use all facilities (e.g. electrical, plumbing, heating, etc.) and appliances reasonably;
  4. Comply with the maximum number of persons allowed to occupy the premises; and
  5. Leave the premises in the same condition it was in when it was handed to the tenant.

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:

  1. Deliberately and negligently destroy, damage, or remove parts of the premises; and
  2. 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 Iowa

Time Frame: An Iowa landlord has 30 days to return any unused portion of the security deposit along with an itemized list of damages deducted (if applicable). This time period begins on the date of termination presented in the lease agreement, during which written notice stating the details of why the landlord is withholding the security deposit. The written notice should be mailed to the tenant’s forwarding address. If the tenant does not provide a forwarding address for the landlord to return the security deposit to within one year, they forfeit the right to retain any leftover funds or receive an itemized receipt.

Failure to Return Security Deposit as Required: If the landlord refuses or fails to provide a written notice and return the security deposit within the 30-day limit, the tenant stands to recover up to double the amount the security deposit plus legal fees if the deposit is withheld in bad faith. Otherwise, the landlord forfeits the right to make deductions from the security deposit and must return the full deposit if they do not return the security deposit or provide a receipt of deductions. The tenant may also take the landlord to Small Claims Court as long as the limit is under $5,000.

Questions? To chat with an Iowa landlord tenant attorney, Click here

Security Deposits and Tax Filing in Iowa

Whether a security deposit will be treated as taxable or not depends on how the deposit is used.

Taxable Income: Security deposits are not automatically considered income upon collection at the beginning of tenancy. They only become taxable income when the landlord no longer has any obligation to refund them (such as for settling damages incurred). At this point they may also qualify as a write-off for tax purposes as well.

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 three simple rules the IRS has suggested to follow:

  1. 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.
  2. 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.
  3. 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 Iowa

Receipt Requirements: The landlord is not required to provide a receipt for the security deposit in Iowa.

Security Deposit Holdings in Iowa: Iowa laws require landlords to hold security deposits separate from other funds. All security deposits shall be held by the landlord in a bank or savings and loan association or credit union which is insured by an agency of the federal government. Security deposits shall not be commingled with the personal funds of the landlord.  Security deposits may be held in a trust account.

Security Deposit Interest in Iowa: Iowa laws do not require landlords to provide interest on held security deposits for tenancies. However, if the rental deposit is held in a common trust account, which also may be an interest-bearing account, any amount of interest earned on a security deposit during the first five years of tenancy shall be the landlord’s property.

New Property Owner’s Responsibility: If the landlord doesn’t return the deposit to the tenant, the new owner is responsible for the security deposit, except if the tenant objects to the stated amount of the security deposit that is transferred within 21 days after getting the written notice. The new owner’s obligation is limited to returning the amount of deposit contained in the notice. The notice should contain a stamped envelope addressed to the new owner. (IA Code 562A.12 (6))

For additional questions about security deposits in Iowa, please refer to the official state legislation, Iowa Landlord-Tenant Statutes