- Standard Limit / Maximum Amount: 1 month’s rent (read more)
- What Can Be Deducted: Unpaid rent, Damage caused by the tenant, Utility charges, & Costs of storing or moving the tenant’s belongings (read more)
- Time Limit for Return: 14 days after the tenant vacates the premises (read more)
- Penalty if Not Returned on Time: Double the original deposit (read more)
Purpose. Security deposits are like safety nets. They ensure compensation for any loss that the landlord might incur because of the tenant’s acts. It covers for incidents like damage to the property, termination of the lease without notice or non-payment of rent.
Legal Basics. New York landlords can demand a maximum of 1 month’s rent as security deposit from which unpaid rent, damage caused by the tenant, utility charges, and costs of storing or moving the tenant’s belongings. may be deducted. It must be returned within 14 days after the tenant vacates the premises. Otherwise, the landlord may be made to pay a penalty of double the deposit.
Maximum Security Deposit Charge in New York
New York statutes did not always limit the amount of security deposit that landlords can charge. Now, after the Housing Stability and Tenant Protection act of 2019 was passed, New York landlords may only charge up to 1 month’s rent for security deposit.
Note, however, that this limit on the amount of security deposit only applies to non-rent stabilized residential units. Other rules will apply to security deposits given in leases of:
- Units subject to the city rent and rehabilitation law or the emergency housing rent control law,
- Licensed continuing care retirement communities licensed,
- Licensed assisted living providers,
- Licensed adult care facilities,
- Recognized senior residential communities, or
- Not-for-profit independent retirement communities
Security Deposit Holdings in New York
New York landlords are prohibited from commingling any security deposit received from any other funds that the landlords have. This is because the security deposit remains the property of the tenant and is only being held by the landlord in trust.
Should the landlord decide to place the security deposit in a bank, it must be in a bank that has an office in New York. Also, the landlord must notify the tenant in writing of the name and address of the bank, and the exact amount of security deposit placed therein that belongs to that tenant. The landlord can choose to put the security deposit in an account that earns interest or does not but whenever earned, the interest will accrue to the tenant.
However, if the landlord receives or is receiving security deposit from tenants of a property that has at least 6 family dwelling units, the landlord is required to place all security deposits in an interest-bearing account that earns interest at more or less the same rate as other similar accounts.
Allowable Deductions on Security Deposits in New York
The landlord can only use the security deposit when the lease or tenancy has ended or has been terminated. Also, the landlord can only use the security deposit to cover the following:
- Unpaid rent
- Damage caused by the tenant beyond normal wear and tear
- Unpaid utility charges provided in the lease
- Costs of storing or moving the tenant’s belongings.
However, the landlord cannot deduct from the security deposit the cost of repairs or damage found in the initial inspection.
After the signing of the lease but before the tenant moves in, the landlord must notify the tenant that the latter has the option of having an initial inspection of the unit so they can both determine the exact condition of the unit.
Should there be an initial inspection, the parties must execute a written agreement before the tenant moves in. The agreement should state the condition of the unit and details the existing defects and damages discovered during the initial inspection.
Can the deposit be used by the tenant as last month’s rent? Not usually, but it can be done if there is a written agreement between the parties to do so.
“Normal Wear and Tear” vs. Damage in New York
Damage to the property that’s normal wear and tear will not be chargeable to the security deposit. So, it’s important to know the difference between the two:
- “Normal wear and tear” only include deterioration of the property that happens when the property is used as it was meant to be used and only when that deterioration occurs without negligence, carelessness, accident, misuse, or abuse by the tenant or the people the tenant brings there. Normal wear and tear can take on the form of gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass, dirty grout and mold that occur naturally.
- “Damage” refers to the destruction that occurs because of abuse or negligence by a tenant during the course of the tenancy. It diminishes the usefulness, value or normal function of the rental unit. It can include pet damage, broken tiles, holes in the wall, broken windows and missing fixtures.
For a more in-depth discussion on the difference, check out our article on Normal Wear and Tear vs Damage here.
Returning Security Deposits in New York
Time Frame: The landlord has 14 days after the tenant vacates the premises to return the security deposit, or what’s left of it after deduction, and the itemized list of the basis of the deductions that were made.
Failure to Return the Security Deposit on Time: If the landlord fails to return the security deposit and/or the itemized list of deductions within the time allowed, the landlord loses the right to retain or make deductions from the security deposit. Also, if the landlord did not have good reason to withhold the security deposit or part of it (e.g. if the landlord misused the security deposit or simply refuses to return the same), the landlord may be made to return the amount withheld plus a penalty of double the security deposit.
Security Deposits and Tax Filing in New York
How the security deposit will be treated tax-wise depends on whether or not the landlord gets to keep it (or part of it).
Taxable income: Security deposits are not automatically considered income when the landlord receives them. The IRS advises to not include security deposits as income if the landlord may still be required to return the same. They only become taxable income when the landlord no longer has any obligation to refund them. For example, if the security deposit was given in 2019 but was only forfeited in 2020, then the landlord should only include it as income in 2020.
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 3 simple rules the IRS has suggested to follow:
- 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.
- If 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 York
Inspection Before the End of the Tenancy: Within a reasonable time after either party has notified the other of that party’s intention to terminate the tenancy (unless the tenant has terminated the lease with less than 2-weeks’ notice), the landlord is required to inform the tenant in writing that the latter has the option to have another inspection before vacating the premises and the right be present at such inspection.
Should the tenant opt to have this inspection, the parties must do the same no earlier than 2 weeks but no later than 1 week before the end of the tenancy, that’s anytime during the second to the last week of the tenancy. The landlord must also give the tenant at least 48 hours notice from the time of inspection. After the inspection, the landlord must give the tenant an itemized statement of all the repairs and cleanings the cost of which he intends to deduct from the security deposit. This will give the tenant the opportunity to have those repairs or cleaning done prior to vacating the unit to minimize deductions from the security deposit.
Interest Payments: New York landlords are not always required to pay interest on security deposits. The landlords are only required to do so if the security deposit is placed in an interest-bearing account. Whenever required, the interest accrues to the tenant but the landlords are allowed to keep 1% of the security deposit every year as administration fee. This interest may be held by the landlord and returned with the rest of the security deposit at the termination of the lease, or applied to the rent or paid out to the tenant. Should the lease be terminated before the bank pays interest on the account, the landlord will only need to pay the tenant whatever interest the landlord is able to collect at that time (in addition to the remainder of the security deposit after deductions, of course).
New Property Owner’s Responsibility: The old landlord has 5 days after the sale of the property to do the following:
- Turn over the security deposit of the tenants in that property to the new owner; and
- Notify the tenants of the transfer and provide them with the name and address of the new owner via certified mail
The old landlord’s responsibilities over the security deposit will only be transferred to the new buyer after doing both of the above. If the old landlord does not transfer the security deposits as required, the new owner can demand that the former establish an escrow account with the amount of 1 month’s rent for each leased unit in the property in case the tenants demand the same upon the termination of their leases.
However, even if the old landlord has not transferred the security deposit, the new buyer is liable to the tenants for the amounts of security deposit that the new buyer has actual knowledge of plus interest thereon if any. The landlord is deemed to have actual knowledge of the deposits that were:
- Deposited six months immediately prior to the transfer of title;
- Acknowledged in any lease; or
- Supported by documentary evidence provided by the tenant.
Number 3 above, refers to instances where there are units in the property where there is no record of security deposits having been paid. In such cases, the new buyer must notify the tenants of those units of the following within 30 days from the transfer of title:
- That there is no record of payment of the security deposit for the unit;
- That the tenant has 30 days from the receipt of the notice to provide proof of payment of the security deposit; and
- That failure to do so will cause that tenant to lose any claim relating to security deposits.
Should the new buyer fail to do so, the tenant may show proof of payment at any time. The following are the accepted proof of payment:
- A canceled check drawn to the order of;
- A receipt from the old landlord; or
- A statement of the same in a lease signed by the old landlord.
Frequently Asked Questions
How much can a landlord charge for a security deposit in New York?
The maximum security deposit a landlord can charge in New York is the equivalent of 1 month’s rent. This limit applies to non-rent stabilized residential units for rent. Rent-controlled apartments and subsidized or federally assisted housing will have their own limits under their respective governing rules.
Can you use the security deposit as last month’s rent in New York?
In New York, a tenant is not usually allowed to use the security deposit as last month’s rent. However, if there is an agreement between the landlord and the tenant to use the security deposit for last month’s rent, then the tenant can do so.
What can a landlord deduct from a security deposit in New York?
A landlord in New York can legally deduct the following from the security deposit: unpaid rent, damage caused by the tenant, charges provided in the lease, costs of storing or moving the tenant’s belongings.
However, repairs and restorations are not chargeable against the security deposit if they are for that damage was caused by normal wear and tear, or existed before the tenant moved in.
Can a landlord charge a cleaning fee in New York?
In New York, a landlord is allowed to charge a cleaning fee but only insofar as necessary to bring the unit to the state it was in when the tenant moved in. Beyond that, the landlord can only charge cleaning costs against the security deposit if the rental agreement allows doing so.
What is considered normal wear and tear in New York?
Normal wear and tear in New York is defined as a matter of case law or practice. The statutes do not specifically provide a definition but generally, it is deterioration that occurs naturally as a result of the tenant using the property as it’s designed to be used without fault or negligence from the tenant.
How long does a landlord have to return the security deposit in New York?
In New York, a landlord has 14 days from the move out date to return the security deposit. Note that the landlord must also provide the tenant with the written statement of charges within the same time frame.
What happens if a landlord does not return the security deposit in New York?
If a landlord in New York does not return the security deposit within 14 days from the move out date, the landlord loses the right to make any deductions and may be liable for a penalty of double the amount withheld.
Are security deposits taxable in New York?
Security deposits in New York aren’t taxable until they become the landlord’s property. This happens when the security deposit is applied to rent, forfeited, or applied to charges allowed under the lease.
However, when they are used to cover expenses incurred by the landlord due to the tenant’s fault, like the cost of repairs or unpaid utilities, they are not always taxable. The IRS advises to only report them as income if the landlord also reports the costs they covered as expenses. Otherwise, there is no need to report them as income, in which case they will not be taxed.
For additional questions about security deposits in New York, please refer to the official state legislature, New York General Obligation Law § 7-103 to § 7-109, for more information.