- Standard Limit / Maximum Amount: Up to two months’ rent (read more)
- Security Deposit Holdings: Security deposits must be held in federally-insured, interest-bearing accounts that earn 1.5% APY and should accompany a receipt that provides the location where the funds are held (read more)
- What Can Be Deducted: Unpaid rent, cost of damage to the unit (not wear and tear), and any other reason mentioned in the lease agreement (read more)
- Time Limit for Return: Within 45 days of lease termination (read more)
- Penalty if Not Returned on Time: Forfeiture of right to retain any portion of the deposit, plus damages of triple the withheld funds and legal fees if the withholding is willful and negligent. (read more)
- Walk-Through Inspection: Tenant has a right to request move-in checklist walkthrough and be present during a move-out inspection that is used for finding deductions from the security deposit if the landlord is notified at least 15 days before the termination date. (read more)
Purpose. Maryland defines “security deposit” as any payment of money, including payment of the last month’s rent in advance, that is given to a landlord by a tenant for the purpose of protecting the landlord against unpaid rent, damage due to breach of the rental agreement, or damage to the rental unit, common areas, major appliances and furnishings.
Legal Basics. Maryland landlords can ask for a maximum of two months’ rent as a security deposit, which must be held in a separate, interest-bearing account. It must be returned within 45 days of lease termination, otherwise the landlord will forfeit the right to retain the deposit and be subject to litigation for the return of unreturned funds.
Maximum Security Deposit Charge in Maryland
In Maryland, a security deposit cannot exceed two months’ rent regardless the number of tenants. If the collected security deposit exceeds this amount, the tenant may claim up to triple the amount charged, plus attorney fees, within 2 years of termination through Small Claims Court.
Additional Pet Deposits: Under Maryland’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 Holding Requirements in Maryland
The landlord must deposit the security deposit into an account within 30 days after receiving the funds. The landlord may hold the security deposit in insured certificates of deposit at a federally insured financial institution that is located in the State of Maryland.
Receipt Requirements: The landlord must provide a receipt for the security deposit and the receipt shall notify the following:
- A written list of damages which is inspected by both the landlord tenant;
- The landlord’s obligation to notify the tenant of the date of inspection and the tenant’s right to be present at the end of tenancy inspection;
- The tenant’s right to receive any unused funds of the security deposit and a written list of damages (if any) in which there will be deductions from security deposit via first-class mail to the tenant’s forwarding address within 45 days after the end of tenancy;
- A written statement that if the landlord fails to comply with the security deposit law, the landlord will be held liable to the tenant up to three times the security deposit amount, plus attorney’s fees;
- The landlord shall keep a copy of the receipt for two years after the end of tenancy; and
- The landlord will pay the tenant $25.00 if the landlord does not provide the tenant with a written receipt for the security deposit.
Security Deposit Holdings in Maryland: Maryland laws require that security deposits be held in a separate interest-bearing in a federally insured institution in the state within 30 days of collection.
Security Deposit Interest in Maryland: Maryland laws require landlords to provide interest on held security deposits, which should grow at the daily U.S. Treasury yield curve for one year, or 1.5% per year, or whichever amount is greater. Interest shall accrue at monthly intervals from the day the landlord receives the security deposit. The interest shall be payable on security deposits that are at least $50.00 or more. Note, interest is not compounded. No interest is due in the following situations:
- For any tenancy period less than one full month; or
- The landlord has held the security deposit for a minimum of six months.
Allowable Deductions on Security Deposits in Maryland
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:
- Unpaid rent; or
- 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?
The deposit may be used as the 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 Maryland
- “Normal Wear and Tear“ refers to the 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.
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:
- 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;
- Maintain smoke detection and/or carbon monoxide detection devices;
- Comply with the maximum number of persons allowed to occupy the premises; and
- 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:
- Change the locks on doors on the premises, except if necessary in an emergency;
- Destroy, damage, or remove parts of the premises;
- Unreasonably disturb the neighbor’s peaceful enjoyment of the premises; and
- Engage in illegal activities involving prostitution, gambling, use of alcohol or controlled or prohibited substances, and other similar or illegal activities, or in activities promoting the same within 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 Maryland
Time Frame: A Maryland landlord has 45 days to return any unused portion of the security deposit (plus interest) along with a written notice of an itemized list of damages deducted. This time period begins on the date of termination presented in the lease agreement, during which written notice should be mailed to the tenant’s forwarding address via first-class mail. If the landlord does not itemize the deductions, they forfeit the right to make any deductions against the deposit and must return the full sum.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 45-day limit, the tenant stands to recover up to triple the withheld amount, plus any legal fees associated with recovering the deposit in court.
Security Deposits and Tax Filing in Maryland
Whether a security deposit will be treated as taxable or not depends on if the deposit is used or returned.
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:
- 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 Maryland
Right to a Walk-Through Inspection in Maryland: At the start a Maryland lease, the tenant has the right to request and be present for a walkthrough of the property that denotes any existing damages within 15 days of taking possession of the unit.
At the end of the lease, a tenant also has the right to be present during the landlord’s move-out inspection (with notice of at least 15 days before lease termination). The landlord should establish a date that’s five days before or after the date of termination and notify the tenant.
These rights should be explained in the lease or as part of the security deposit receipt. If the landlord fails to provide notice of tenant’s rights to walkthrough inspections or oblige with a proper request, they forfeit the right to retain any of the deposit.
New Property Owner’s Responsibility: If the rental unit changes ownership through a sale or transfer, the new landlord will be responsible to the tenant and the prospective owner for the maintenance of the security deposit, as well as withholding and returning the security deposit, all or in part, plus any interest until the transfer is completed. A landlord who is unable to transfer a tenant’s security deposit, whether in part or in full, to the new owner, will still be held liable for any portion that has not been transferred.
Surety Bonds: A tenant may use (but may not be required to by the landlord) a surety bond instead of cash security deposit, which is subject to the same rules as a cash security deposit. A surety bond is a three-party agreement, including the tenant, the landlord and a surety company. The surety company thus acts a co-signer, the tenant may pay on average between 1-4% of the total bond amount. The surety bond must have the following in writing for the tenant’s records:
- The surety bond is not insurance for tenant;
- Payment for the surety bond is nonrefundable and the tenant may be required to reimburse the surety bond for amounts the surety paid to the landlord; and
- The surety bond is purchased to protect the landlord (this includes any unpaid rent, negligent damages to the property and any breach in the rental agreement.
Even if a surety bond is in place, the tenant is still responsible for the following:
- Unpaid rent;
- Damage due to the breach of the rental agreement; or
- Damage caused by the tenant (or invited guests) in excess of ordinary wear and tear to the premises.
If any of the above are in violation of the rental agreement, the landlord must send the tenant a written list of damages and costs via first class mail. The tenant has the option to directly pay the landlord of any damages caused or dispute the list of damages. If the damages have not been paid or acknowledged by the tenant to the surety company within 10 days, the landlord may file a claim against the surety bond and the surety company will pay the landlord. The surety company will then ask the tenant for the re-payment of the violations. If a surety bond is purchased by a tenant and the tenant provides a security deposit, both amounts shall not exceed two months’ rent. If a tenant is charged more than two months’ rent, the tenant may recover up to three times the extra amount that was charged for the surety bond and any attorney’s fee.
For additional questions about security deposits in Maryland, please refer to the official state legislation, Maryland Landlord-Tenant Statutes