- Standard Limit / Maximum Amount: 1 month’s rent (read more)
- What Can Be Deducted: Unpaid rent and water bills, unpaid real estate tax increase and cost of damage to the unit (read more)
- Time Limit for Return: 30 days from the end of the lease (read more)
- Penalty if Not Returned on Time: 3 times the amount withheld, 5% interest, costs of suit and attorney’s fees (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. Massachusetts landlords can demand a maximum of one month’s rent as security deposit from which unpaid rent and water bills, unpaid real estate tax increase and cost of damage to the unit may be deducted. It must be returned within 30 days. Otherwise, the landlord may be made to pay a penalty of up to triple the deposit.
Maximum Security Deposit Charge in Massachusetts
In Massachusetts, landlords cannot charge a tenant security deposit that is more than one month’s rent. However, the landlord may collect separate advance amounts for the following:
- First month’s rent;
- Last month’s rent; or
- Purchase and installation cost for key and lock.
Collecting the Last Month’s Rent in Advance: If the landlord collects the final month’s rent in advance, the landlord must provide the tenant with a receipt for the same, specifically stating:
- the amount of such rent;
- the date it was received;
- that it is intended as rent for the last month of the tenancy;
- the name of the person receiving it and for whom;
- a description of the unit;
- a statement indicating that the tenant is entitled to interest on the last month’s rent received; and
- a statement indicating that the tenant should provide the lessor with a forwarding address at the termination of the tenancy.
The interest rate on the last month’s rent will be the lesser of 5% or the interest the account in which the tenant’s security deposit and other advance payments earns.
Statement of the Condition of the Unit
Upon receiving the security deposit or within 10 days from the start of the tenancy, the landlord must provide the tenant with a statement of the condition of the unit. This statement must indicate all existing damage to the unit as well as any existing violation of state sanitary or building codes. This statement must be signed by the landlord and must contain the following notice in twelve-point bold-face font:
This is a statement of the condition of the premises you have leased or rented. You should read it carefully in order to see if it is correct. If it is correct you must sign it. This will show that you agree that the list is correct and complete. If it is not correct, you must attach a separate signed list of any damage which you believe exists in the premises. This statement must be returned to the lessor or his agent within fifteen days after you receive this list or within fifteen days after you move in, whichever is later. If you do not return this list, within the specified time period, a court may later view your failure to return the list as your agreement that the list is complete and correct in any suit which you may bring to recover the security deposit.
If the tenant does not agree with any part of the statement, the tenant must give the landlord a signed copy of the same specifying the parts of the statement the tenant disagrees with.
Security Deposit Holdings in Massachusetts
Massachusetts landlords are not allowed to commingle tenants’ deposits with their other funds. They are required to place security deposits in a separate interest-bearing bank account in the state. The landlord does not need to have a separate account for each tenant who gives a security deposit. Security deposits from different tenants may be kept in the same account for as long as that account only holds security deposits and prepaid rent.
What the landlord can’t do is put it in the same account where other funds like the rental income or personal savings are kept. Also, this account should be set-up in a way that places it beyond the claim of the landlord’s creditors and that it may be transferable in case the landlord sells the rented property.
The landlord must provide the tenant with a receipt for depositing the latter’s security deposit as required. The receipt must indicate the name and location of the bank, the amount deposited, and the account number.
Failure of the landlord to comply with the above requirement will entitle the tenant to the immediate return of the latter’s deposit, which also means the landlord forfeits all rights to retain any part of the same.The landlord may also be made liable for triple the amount the landlord is withholding, 5% interest, costs of suit and attorney’s fees
Allowable Deductions on Security Deposits in Massachusetts
The landlord can only use the security deposit when the lease or tenancy has ended or has been terminated. Also, the landlord can only use the security deposit to cover:
- Unpaid rent and water charges;
- Unpaid increase in real estate taxes if the tenant is responsible for the same;
- The cost of repairs for damage caused by the tenant, excluding damage indicated in the statement of the condition of the unit provided at the beginning of the tenancy and wear and tear.
The landlord cannot make deductions that are not included in the list above.
Can the deposit be used by the tenant as last month’s rent? No, in Massachusetts, tenants are not allowed to use the security deposit as last month’s rent. Landlords, however, may collect last month’s rent in advance, which must specifically be stated as such when collected.
“Normal Wear and Tear” vs. Damage in Massachusetts
- “Normal wear and tear” refers to the deterioration of the property that happens when the property is used as it was meant to be used and 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, dirty grout and mold that occur naturally.
- “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 and can affect usefulness, value or 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.
Returning Security Deposits in Massachusetts
Time Frame: The landlord must return the security deposit, or what’s left of it after the allowed deductions within 30 days after the termination of the rental agreement. If the tenancy is terminated in the middle of a tenancy year or if there is interest that is payable to the tenant but cannot be credited to the rent because the lease has ended, such interest must also be paid to the tenant within 30 after the termination of the lease.
Sworn Statement for Deductions: If there are deductions on the security deposit, the landlord is required to inform the tenant of the specifics of the same within the same timeframe. Specifically, if landlords are making deductions for cost of repairs, the landlord must provide the tenant with an itemized list of damages, sworn to by the landlord, detailing the nature of the damage and of the necessary repairs, and including proof of the costs like receipts or estimates for the costs.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 30 days, the tenant stands to recover the security deposit and up to triple the amount the landlord is withholding, 5% interest, costs of suit and attorney’s fees.
Security Deposits and Tax Filing in Massachusetts
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 Massachusetts
Receipt Requirements: The landlord is required to provide a receipt for the security deposit in Massachusetts. The receipt must be given to the tenant when the security deposit is paid or given to the landlord. The receipt must contain the amount of the security deposit received, the name of the recipient (and for whom, if an agent is receiving the same for the landlord), the date, and a description of the rented unit. The recipient must be signed by whoever is receiving the security deposit.
Record-Keeping Requirements: Landlords are required to maintain a record of security deposits received including the following information:
- All damage to the rental unit for which the landlord either accepted security deposit, returned it, or sued the tenant for;
- The date of the termination of the lease of the tenant who was charged for the damage
- Details of whether repairs were made including the date, costs, and receipts therefor.
The landlord must keep a record of the above for each rental unit for up to at least up to 2 years back.
Interest Payments: Landlords who are holding security deposits for a periof of 1 year or longer must pay the tenant annual interest thereon at the rate of 5% or the interest of the account that contains the security deposit earns, whichever is lesser. When a landlord is required to pay interest, the landlord must provide the tenant with a statement that indicates the interest payable and the details of the bank containing the latter’s security deposit at the end of each year of tenancy. The landlord may either send the interest payment with the statement or include an additional statement that says the tenant may opt to have the interest payable to the latter credited to the next rental payment.
New Property Owner’s Responsibility: If the rental property is sold while the lease subsists, the old landlord must transfer the security deposit, and the interest accrued to the new owner. The new owner inherits the old landlord’s rights and duties regarding the security deposit as if the new owner were the original landlord including complying with the rules on holding and returning the same. The new owner must furnish the tenant with the required notice of the details of how and where the security deposit is held within 45 days of receiving the same.
For additional questions about security deposits in Massachusetts, please refer to the official state legislation, Massachusetts General Laws Chapter 186 § 15B, for more information.