Landlords should familiarize themselves with the statewide regulations that govern security deposits in Nevada and understand their responsibilities.
Quick Facts for Nevada
- Maximum Amount: Cannot exceed 3 month’s rent
- Duration for Return: 30 days after end of lease
- Penalty for Late Returns: Refund deposit amount, plus 7% interest
- Deadline to Claim Funds: Within 30 days of receipt of itemized list
Typically a tenant cannot lease a rental unit without first providing the landlord with a security deposit. Landlords and tenants should know Nevada’s security deposit law that govern the landlord-tenant relationship. Landlords have the right to take the necessary steps to protect their interest by having a security deposit requirement when entering a lease agreement. Tenants should protect their security deposit by adhering to their lease obligations.
The Purpose of a Security Deposit
Security deposits serve as a safety net for landlords should they suffer financial losses caused by the tenant doing damage to the rental property, or a breach of the lease agreement, or unpaid rent. A security deposit ensures that a landlord is compensated for losses and may also incentivize tenants to adhere to their lease obligations in order to secure their security deposit at the end of the tenancy agreement. Let’s go through some of the basic elements of security deposits in the state.
A Nevada landlord is allowed to charge a security deposit or accept a surety bond or a combination of both that is equal to 3 month’s rent. (NRS 118A.242 (1)).
If a landlord approves, a tenant can purchase a surety bond to cover all or a portion of the security deposit. Under the rental agreement, a surety bond can be used to (NRS 118A.242 (2)(a)(b)(c)):
- Cover unpaid rent
- Repair damages to the premises, not including normal wear and tear
- Cleaning costs
Landlords are not required to accept a surety bond from tenants and they cannot force a tenant to purchase one.
At the tenant’s request, a landlord must provide the tenant with a signed written receipt for the security or surety bond, or a combination, and any other payments, deposits or fees, including rent, paid by the tenant that the landlord has received. The tenant has a right to refuse to make rent payments until the landlord delivers the requested receipt (NRS 118A.250).
Returning Security Deposit
- Itemized List: At the end of a tenancy, if a landlord intends to withhold all or a portion of a tenant’s security deposit or surety bond, he/she must provide the tenant with an itemized written statement detailing the deductions made and the charge for each (NRS 118A.242 (4)).
- Timeframe: The landlord must return the remaining deposit or surety bond, if any, to the tenant within 30 days of the tenancy termination, delivering it to the tenant personally at the place where the rent is paid, or by mailing it to the tenant at the tenant’s current address. If the tenant’s current address is unknown, it should be sent to the tenant’s last known address (NRS 118A.242 (4)).
- 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, landlords and tenants establish such a provision in the rental agreement at the beginning of the tenancy.
If a tenant disputes an itemized deduction in the written statement received from the landlord, the tenant can send a written response disputing the item to the landlord. If the tenant sends the written response within 30 days of receiving the itemized written statement of the deduction, the landlord must not report the claim to a credit reporting agency unless he/she obtains a judgment against the tenant (NRS 118A.242 (5)).
If a landlord fails or refuses to return the remainder of a tenant’s security deposit within 30 days after the tenancy termination, he or she will have to pay the tenant the exact amount of the original deposit, plus any amount awarded by a court (NRS 118A.242 (6)(a )(b)).
At the end of a tenancy, a landlord has a right to claim all or a portion of a tenant’s security deposit or surety bond, or both, to cover the cost for (NRS 118A.242 (4)):
- Unpaid rent
- Repair damages to the premises beyond normal wear
- Cleaning Costs
In Nevada, a landlord cannot charge a non-refundable security deposit, except in the case where a rental agreement establishes a nonrefundable charge for cleaning (NRS 118A.242 (8)).
Transfer of Ownership
In the state of Nevada, when ownership is transferred in the property by sale or otherwise, a landlord is required to do one of two things within a reasonable time to relieve the landlord of responsibility for the security deposit (NRS 118A.244 (1) (2)):
- Notify the tenant in writing of the name, address and telephone number of the new owner, and transfer the security or surety bond, or both, minus legal deductions.
- Return the security deposit to the tenant, minus legal deductions. The new owner should be notified in writing that the old landlord had returned the security deposit or surety bond, or both to the tenant.
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.
Tips for Nevada Landlords on the Right Practices for Security Deposits
- Charge tenants a security deposit in the amount of 3 month’s rent
- Return security deposits within 30 days of tenancy termination and provide the tenant with a written itemization of the damage and the charge of each
- Withhold security deposits for unpaid rent, damage to the premises and cleaning costs
- Expect to pay an amount equal to the amount of the original deposit for wrongful withholding
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
To finalize a lease agreement often requires a tenant to provide the landlord with a security deposit. Knowing how the state’s security deposit law applies to them will help both landlords and tenants to protect their interests. Nevada landlords should make an effort to stay in compliance with the law, while tenants have a duty to adhere to the obligations of their lease agreement.
Make sure to refer to the Revised Statutes Annotated §§ 118A.240 through 118A.250 for more on security deposits. Landlords should educate themselves on this topic to protect their rental property and avoid any legal trouble.