- Standard Limit / Maximum Amount: 2 months’ rent; 1 month for leases renewed after the 1st year (read more)
- What Can Be Deducted: Unpaid rent, cost of damage to the unit, & expenses due to breach of the lease (read more)
- Time Limit for Return: Landlord has 30 days from the end of the lease (read more)
- Penalty if Not Returned on Time: Double the amount withheld (read more)
- Tenant’s Deadline to Claim Funds: 90 days (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. Pennsylvania landlords can demand a maximum of two months’ rent (1 month for leases renewed after the 1st year) as security deposit from which unpaid rent, cost of damage to the unit, and damages caused by a breach of the lease may be deducted. It must be returned within 30 days after the end of the lease. Otherwise, the landlord may be made to pay a penalty of up to double the amount withheld.
Maximum Security Deposit Charge in Pennsylvania
Pennsylvania landlords can charge a maximum of the equivalent of 2 months’ rent as security deposit. For leases renewed after the first year, the landlord can only require 1 month’s rent as security deposit. For renewals of a lease that has spanned more than 5 years, the landlord can no longer increase the amount of security deposit even if the rent increases. These limits will apply even if a tenant wishes to waive them. However, these limits, as well as the rules discussed below, only apply to leases of residential property.
Security Deposit Holdings in Pennsylvania
If the security deposit is more than $100, the landlord must do one of the two things below:
- The landlord may place the security deposit in an escrow account in a bank or institution regulated by the Federal Reserve Board, Federal Home Loan Bank Board, Comptroller of the Currency or the Pennsylvania Department of Banking
- Upon placing the security deposit in an escrow, the landlord must notify the tenant of the name and address of the bank or institution where the latter’s security has been placed and indicate the exact amount placed therein.
- For leases that are renewed beyond the first 2 years (24 months), security deposits more than $100 must be placed in an escrow account that earns interest. The interest earned on such an account will belong to the tenant and paid to the tenant every year on the anniversary of the lease. However, the landlord may take 1% of the security deposit as an administration fee.
- Alternatively, the landlord may secure a bond from a surety authorized in Pennsylvania conditioned upon the landlord returning the security deposit to the tenant minus allowed deductions at the end of the lease.
Allowable Deductions on Security Deposits in Pennsylvania
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 for:
- Unpaid rent
- The cost of damage to the unit
- Breach of any other condition in the lease by the tenant
“Normal Wear and Tear” vs. “Damage” in California
- “Normal wear and tear” refer to minor issues that occur naturally as a result of the tenant using the property as it was designed to be used. These minor issues can include gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass, dirty grout and even mold.
- “Damage” refers to the destruction that is a result of abuse or negligence by a tenant during the tenancy period. Damage to the rental property negatively impacts its usefulness, value, or normal function. It can include pet damage (heavily stained and ripped carpets), broken tiles, holes in the wall, broken windows and missing fixtures.
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.
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.
Returning Security Deposits in Pennsylvania
Time Frame: The landlord has 30 days from the end of the lease or the day the tenant vacates the premises, whichever is earlier, to return the security deposit together with any interest that has not been paid or credited to the tenant. If the landlord intends to make deductions, the landlord must also provide the tenant with a written list of the charges and return what is left of the security deposit within the same timeframe.
Penalty for Failure to Provide the Written List: If the landlord fails to provide the written list of claims or deductions on the security deposit, the landlord forfeits all rights to the security deposit or any part of it as well as the right to sue the tenant for damage to the unit.
Penalty for Failure to Return the Security Deposit on Time: If the landlord fails to return the security deposit or what is left of it, the landlord may be made to pay double the withheld from the tenant, which is the difference between the security deposit plus interest and the total amount of allowable deductions.
Security Deposits and Tax Filing in Pennsylvania
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 Pennsylvania
Receipt Requirements: The landlord is not required to provide a receipt for the security deposit in Pennsylvania.
Failure of the Tenant to Provide a Forwarding Address: If the tenant fails to provide the landlord with a forwarding address, the landlord will be relieved from all liability concerning the security deposit and accounting therefor.
Security Deposit Interest in Pennsylvania: Pennsylvania laws do not always require payment of interest on security deposits. The landlord is only required to pay interest on security deposits when the same is placed in an interest-bearing escrow account. Placing the security deposit in an interest-bearing account is only required when the lease lasts or is renewed after the first 2 years and the security deposit is more than $100.
For additional questions about security deposits in Pennsylvania, please refer to the official state legislation, Pennsylvania Landlord and Tenant Act § 250.511a to § 250.512, for more information.