New Mexico Security Deposit Law

New Mexico landlords have a right to require a deposit from tenants before they occupy a rental unit. It’s meant to protect them in the instance a tenant causes financial loss during their tenancy. The state’s security deposit law provides protections to landlords and tenants alike. 

Quick Facts for New Mexico

  • Maximum Amount: 1 months’ rent
  • Duration for Return: 30 days after end of lease or move-out, whichever comes first
  • Penalty for Late Returns: Landlord forfeits all rights to deposit

The Purpose of a Security Deposit

Security deposits serve as a safety net for landlords should they suffer financial losses caused by the tenant, who may have damaged the rental property, or breach the lease agreement, or skipped on the rent.

Security Deposit Maximum in New Mexico

New Mexico landlords can charge the following deposit:

  • Lease Agreement Under a Year: A landlord should charge a deposit that is no more than one month’s rent (NMSA § 47-8-18(A)(2)). 
  • Lease Agreement a Year of More: A landlord can charge a deposit that is more than one month’s rent (NMSA § 47-8-18(A)(1)). 

Security Deposit Interest

The landlord must pay interest on the deposit if the tenant was charged more than one month’s rent (NMSA § 47-8-18(A)(1)). 

Returning the Security Deposit

New Mexico landlords must follow certain procedures when returning a tenant’s security deposit (NMSA § 47-8-18(C)):

  • Written Notice: A landlord must provide the tenant with a written itemized list of each deduction and the charge for each if making deductions.
  • 30-Days Time-frame: A landlord has 30 days from the tenancy termination or move-out date, whichever occurs later, to return the deposit. The written itemized list of deductions should be included, if relevant. 
  • Delivery: The landlord is required to mail the statement and any security deposit payment to the last known address of the tenant. 

Allowable Deductions

New Mexico landlords may hold all, or a portion of a tenant’s security deposit for the following reasons (NMSA § 47-8-18(C)):

  • Unpaid Rent
  • Unpaid Utilities
  • Damage in Excess of Normal Wear and Tear
  • Repair work
  • Other Breaches of the Lease Agreement

Failure to Comply with Return Requirements

If a landlord fails to comply with the deposit return requirements (NMSA § 47-8-18(D)):

  1. Forfeit the right to withhold any portion of the security deposit
  2. Forfeit the right to bring a counterclaim against the tenant to recover the deposit owed
  3. Forfeit the right to take independent action against the tenant for damages to the rental property.
  4. Have to cover tenant’s court costs and attorneys’ fees

Bad Faith Security Deposit Retention

A landlord who in bad faith withholds a tenant’s security deposit will have to pay that tenant a civil penalty of two hundred fifty dollars ($250) (NMSA § 47-8-18(E)).

Last Month’s Rent

A security deposit is not intended to be used to cover a tenant’s last month’s rent, but the provision can be established in the rental agreement.

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.

Security Deposits and Tax Filing

What happens to the deposit at the end of the tenancy determines how it is treated for tax purposes.

  • Accounting for Security Deposits: Security deposits are treated as either assets or liabilities when filing taxes. Tenants shouldn’t deduct security deposits as expenses and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant.
  • Security Deposit Write-off: If a landlord withholds part or all of the security deposit for losses, that amount should be included as income when filing taxes. Forfeited deposits should be declared as income.

“Normal Wear and Tear” vs. Damage

  • “Normal wear and tear” is deterioration that occurs as a result of everyday use of the rental unit, and without negligence, carelessness, accident, or misuse or abuse by the tenant.
  • “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. 

Property Change Ownership

If a rental property changes ownership, a New Mexico landlord must either:

  1. Transfer the security deposit to the new owner and send tenants a written notification informing tenants of the transfer.
  2. Return the security deposits to the tenant minus any legal deductions; notify the new owner that the tenants’ security deposits has been returned to them.

Tips for New Mexico Landlords on the Right Practices for Security Deposits

  • If the lease term is less than a year, charge one month’s rent for a deposit, but more if the lease is over a year
  • Return security deposits within 30 days of tenancy termination
  • Withhold security deposits for unpaid rent, repair work, utility and other costs related to a breach of the lease agreement
  • Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant

Knowing New Mexico’s security deposit law should be something that both landlord and tenant prioritize. Landlords should remain in compliance with the state’s security deposit law and work to protect their interests in the process. Tenants should adhere to their lease obligations if they want a refund at the end of their lease term. New Mexico security deposit statutes can be found in NM Stat § 47-8-18.