Security Deposits in New York

Landlords should familiarize themselves with the statewide regulations that govern security deposits in New York and understand their responsibilities. Tenants should also be aware of these rules to ensure they receive their full security deposit refund.

Quick Facts for New York

  • Maximum Amount: 1 month’s rent
  • Duration for Return: 30 days after end of lease
  • Inspections: Landlord must obtain consent from tenant when lease starts & ends.
  • Other Requirements: An itemized list of all damages (if any)

Security deposits are an essential part of a rental agreement. Landlords have a right to require a deposit from tenants before they occupy a rental unit. It’s meant to protect a landlord in that instance a tenant causes the landlord a financial loss during the course of the tenancy. Both landlords and tenants should know New York’s security deposit law that governs the landlord-tenant relationship. The state’s security deposit law provides protections to landlords and tenants alike. 

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.

New York City deposit law applies to all rental units in residential premises with six or more rental units and to all rental units subject to the city rent and rehabilitation law, or the emergency housing rent control law (NY GOL §§ 7-103(1)).

Security Deposit Maximum in New York

New York used to have no statutorily designated limit on the amount of security deposit that a landlord can charge in non-regulated units. However, with the Historic Affordable Housing Protections, passed in 2019, landlords may charge up to 1 month’s rent for security deposits. 

Security Deposit Interest

Landlords of buildings with six or more apartments must the tenants’ security deposits in interest-bearing bank accounts in New York. 

Landlords should provide tenants with a written statement informing them of the name and address of the bank where the security deposit is being held and the amount of the deposit. 

Who Gets the Interest

  1. Landlord: Landlords have a legal right to annual administrative expenses of one percent of the deposit. 
  2. Tenant: The remaining interest earned on the security deposits belongs to the tenants and should be paid to them annually. Tenants have a right to have their landlord apply the earned interest towards the payment of rent, or choose to receive payment at the end of the lease term.

If the rental unit has fewer than six apartments, a landlord is not required to put the security deposit in an interest-bearing account, but can voluntarily choose to do so and must follow the requirements that apply to six or more apartments (NY GOL §§ 7-103( (2) (2-a)).

Storing the Security Deposit

New York landlords are required to store a tenant’s security deposit at a financial institution located within the state of New York. Landlords cannot mingle deposit funds with personal funds, and must not use the security deposits for personal needs (NY GOL §§ 7-103 (1)).

Returning the Security Deposit

New York security deposit law does not establish a specific time-frame for returning a tenant’s security deposit. Landlord must return a tenant’s security deposit within a “reasonable time” after the tenant has surrendered the rental property or tenancy termination. Oftentimes, the courts determine what “reasonable time” means and is usually interpreted differently… To remove this ambiguity, the state of New York has defined a “reasonable time” to return a security deposit as 14 days.

Allowable Deductions

New York landlords may hold all, or a portion of a tenant’s security deposit for the following reasons:

  • Unpaid Rent
  • Damage in excess of normal wear and tear
  • Other Breaches of the Lease Agreement

Last Month’s Rent

A security deposit is not intended to be used to cover a tenant’s last month’s rent. The deposit cannot be treated as the last month’s rent unless the landlord and tenant have established a written agreement to that provision.

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.

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 considered 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. 
Check out our article on wear and tear vs. damage to get a better idea of the difference and visit our state laws page to learn more about other landlord-tenant responsibilities.

Property Change Ownership

If a rental property changes ownership, a New York landlord must do one of two things (NY GOL §§ 7-105):

  1. If the building changes ownership, the landlord must transfer all security deposits to the new owner within five days. Landlords must notify the tenants, by registered or certified mail, of the name and address of the new owner. 
  2. Return the security deposits to the tenants.

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

  • Charge tenants a security deposit amount that is “reasonable enough” to cushion potential losses
  • Return a tenant’s security deposits within a reasonable time-frame after tenancy termination
  • Withhold security deposits for unpaid rent, damage that is beyond normal wear and tear, 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 York’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 York security deposit law can be found in New York General Obligations Law §§ 7-103 to 7-108. Read our guide on landlord-tenant law in New York here.

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