In New Mexico, the collection and return of security deposits are regulated under NM Stat § 47-8-18. These laws provide a set of rules that New Mexico landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in New Mexico
In New Mexico, for leases that are less than one year, there is a maximum security deposit charge of one month’s rent. Leases exceeding one year have no maximum security deposit, but charging more than one month’s rent requires the landlord to pay a standard interest on the held funds.
Additional Pet Deposits. Under New Mexico’s law, the landlord may ask for an additional pet deposit. 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.
Allowable Deductions on Security Deposits in New Mexico
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.
- 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 New Mexico
- “Normal Wear and Tear” is defined 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.
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:
- Comply with the minimum standards of housing codes affecting both health and safety.
- Keep the premises, including all plumbing fixtures, clean and safe.
- Dispose of ashes, garbage and other waste in a clean and safe manner.
- Use all facilities (e.g., electrical, plumbing, heating, etc.) and appliances reasonably.
- Not negligently or deliberately destroy, remove or damage the premises.
- Conduct themselves and their invited guests in a manner that shall not disturb their neighbors’ peaceful enjoyment of the premises.
- Follow all rules, regulations, bylaws or covenants to any rental agreement or neighborhood association.
- Not commit any violations.
- Leave the premises in the same condition it was in when it was handed to the tenant.
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 New Mexico
Time Frame: A New Mexico landlord has 30 days to return any unused portion of the security deposit along with a written itemized list of damages deducted. This period begins on the date of termination presented in the lease agreement, during which the statement and remaining balance should be mailed to the tenant’s forwarding address.
Tenant’s Rights Following Fire or Casualty: If the premises is damaged or destroyed by a fire or casualty to the point where the premises is unusable, the rental agreement may be terminated. If the rental agreement is terminated the landlord shall return the balance of the security deposit. Note, this does not apply if the tenant was found negligent and therefore will be responsible for the damages caused.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 30 day limit, the landlord shall:
- Forfeit the full security deposit.
- Forfeit the right to bring any counterclaims to recover the security deposit.
- Be liable to the tenant for any court costs and attorney’s fees.
Additionally, if the landlord acts in bad faith, the tenant may recover the civil penalty of $250 from the landlord.
Security Deposits and Tax Filing in New Mexico
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:
- 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.
- 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 New Mexico
Receipt Requirements: The landlord is not required to provide a receipt for the security deposit in New Mexico.
Security Deposit Holdings in New Mexico: New Mexico laws do not require landlords to hold security deposits separate from other funds.
Security Deposit Interest in New Mexico: New Mexico laws do not require landlords to provide interest on held security deposits unless they charge more than one month’s rent as a deposit. The landlord shall be required to pay to the tenant a yearly interest equal to the passbook interest permitted to the savings and loan associations in New Mexico by the federal home loan bank board on security deposits
New Property Owner’s Responsibility: If the original landlord decides to sell or transfer ownership of the rental property, he or she must transfer the deposit to the new owner. They must also notify the tenant of the change of possession, or return the security deposit to the tenant (minus deductions) and notify the new owner.
For additional questions about security deposits in New Mexico, please refer to the official state legislation, New Mexico Landlord-Tenant Statutes.