A common requirement when entering a lease agreement is a security deposit. Landlords and tenants should know how Nebraska’s security deposit laws apply to their landlord-tenant relationship. Both parties have specific protections under the law when it comes to the security deposit. Landlords can recover financial losses caused by a tenant with a security deposit as a safeguard. Tenants can avoid landlords’ shady dealings by knowing how the law works for them.
Quick Facts for Nebraska
- Maximum Amount: No more than 1 month’s rent
- Duration for Return: Within 14 days after end of lease (for no damages)
- Penalty for Wrongful Withholding: Landlord pays 2x the amount wrongfully withheld/deducted or 1 month’s rent, whichever is less
Purpose of Security Deposit
A security deposit refers to any money that is used to secure a tenant’s adherence to a rental agreement or any part of the rental agreement. A security deposit ensures that a landlord is compensated for losses caused by a tenant and may also incentivizes tenants to adhere to their lease obligations in order to have their security deposit refunded at the end of the tenancy.
Security Deposit Charge
A Nebraska landlord cannot charge a security deposit that is more than one month’s rent. A pet deposit cannot be more than one-fourth of one month’s rent (NRS 76-1416 (1)). The state’s security deposit law doesn’t apply to housing agencies organized or existing under the Nebraska Housing Agency Act.
Allowable Deductions from Security Deposit
A Nebraska landlord is allowed to make certain deductions from a tenant’s security deposit. These include (NRS 76-1416 (2)):
- Unpaid rent
- Damages resulting from the tenant’s breach of the rental agreement
Return Security Deposit
At the end of the tenancy agreement, a landlord has 14 days to provide a tenant with a written itemization of the damage and the charge of each. The notice should be delivered or mailed to the tenant. If the tenant doesn’t provide the landlord with a mailing address or instructions on how he/she can be reached, the landlord must mail the itemized list, along with the remainder of the security deposit, if any, by first-class mail to the tenant’s last-known mailing address.
If the mail is returned as undeliverable, or if the returned balance of the security deposit remains outstanding after 30 days from the time the mail was sent, the landlord has 60 days after the notice is mailed to send the outstanding balance of the security deposit to the State Treasurer (NRS 76-1416 (2)).
Fire or Casualty Damage
If the rental unit or premises are damaged or destroyed by fire, or casualty to an extent that enjoyment of the rental unit is substantially impaired, the tenant may do the folllowing:
- If the rental agreement is terminated, have the landlord return all prepaid rent and security deposit. Accounting for rent in the event of termination or apportionment is to occur as of the date of the casualty. Notwithstanding the provisions of this section, the tenant is responsible for damage caused by his negligence (NRS 76-1429(2)).
Failure to Comply
A landlord who fails to comply with the security deposit return requirements make it possible for the tenant to recover the security deposit owed, along with court costs, and reasonable attorney’s fees. In addition, if a landlord wrongfully withholds the tenant’s security deposit, the tenant can claim twice the amount of the security deposit withheld, or an amount equal to one month’s rent, whichever is less (NRS 76-1416 (3)).
Applying Security Deposit as Last Month’s Rent
A security deposit is not intended to be applied to a tenant’s last month’s rent. However, landlord and tenants establish such a provision in the rental agreement at the beginning of the tenancy.
How to Get a Full Refund of Security Deposit
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, all charges in the rental agreement are covered and any financial loss from a breach of the contract is recovered by the landlord.
Security Deposits and Tax Filing
A security deposit can either be held to cover losses suffered by the landlord or refunded to the tenant, all or in part. What happens at the end of the tenancy determines how a security deposit is treated for tax purposes.
- 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.
“Normal Wear and Tear” vs. Damage
- “Normal wear and tear” as 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.
Rental Unit Change Ownership
In Nebraska if the rental unit changes ownership, the landlord must either:
- Transfer the security deposit to the new owner who becomes responsible for the handling of the security deposit. The landlord must notify the tenant in writing of the transfer.
- Return all or a portion of the deposit back to the tenant directly.
Nebraska Security Deposit Law
Nebraska security deposit law can be found in Nebraska Revised Statute 76-1416.
Tips for Nebraska Landlords on the Right Practices for Security Deposits
- Charge tenants a security deposit in the amount of one month’s rent
- Return security deposits within 14 days and provide the tenant with a written itemization of the damage and the charge of each
- Withhold security deposits for unpaid rent, damages and any other costs related to a breach of lease agreement
- Expect to pay twice the amount of the deposit for wrongful withholding, and loss of the security deposit if the return process if not adhered to
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
A security deposit is an important aspect of a lease agreement. It serves to protect a landlord against losses and incentivize tenants to comply with the obligations of the lease agreement. Landlords and tenants should know how the security deposit law applies to them. The state’s security deposit law can be amended over time and as such, it’s important to stay abreast of the changes.