In South Dakota, the collection and return of security deposits are primarily regulated under the SD Codified L § 43-32-6.1. These laws provide a set of rules that South Dakota landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in South Dakota
In South Dakota, the standard limit is one month’s rent. However, larger deposits may be demanded in certain circumstances where there is additional risk to the property only if the tenant agrees to the deposit in the lease.
Additional Pet Deposits. Under South Dakota’s law, the landlord may ask for an additional pet deposit. However, 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. South Dakota’s landlords require supporting documentation from a licensed healthcare provider to show a certificate for the need of a service or assistance animal. As an exception, the landlord may not require supporting documentation from the tenant if the tenant’s disability or disability-related need for a service animal is readily apparent or already known to the landlord.
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 South Dakota
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.
- Breaches of contract resulting in financial damage.
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 South Dakota
- “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. A tenant is obligated to maintain the property, keeping it safe and in habitable condition. Landlords and tenants should be kept up-to-date with new local ordinances regarding health and safety standards or noise regulations.
To comply with positive obligations under the said rule, the tenant must:
- Keep the premises, including all plumbing fixtures, clean and safe.
- Dispose of garbage and other waste in a clean and safe manner.
- Use all facilities (e.g., electrical, plumbing, heating, etc.) and appliances reasonably.
- Maintain smoke detection and/or carbon monoxide detection devices.
- Comply with the maximum number of persons allowed to occupy the premises.
- Leave the premises in the same condition it was in when it was handed to the tenant.
In the interest of the rental property’s condition, the tenant should not:
- Change the locks on doors on the premises, except if necessary in an emergency.
- Destroy, damage, or remove parts of the premises.
- Unreasonably disturb the neighbor’s peaceful enjoyment of the premises.
- Engage in illegal activities involving prostitution, gambling, use of alcohol or controlled or prohibited substances, and other similar or illegal activities, or in activities promoting the same within the premises.
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 South Dakota
Time Frame: A South Dakota landlord has 14 days to return the security deposit if there are no deductions. If deductions are to be made, the landlord must provide a written statement outlining why the full deposit is not being returned. Within 45 days, the landlord must provide an itemized statement of any deductions that have been made against the deposit if requested by the tenant.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 14 and 45 day limit, the tenant stands to recover up to the full security deposit plus $200 in damages, plus any legal fees associated with recovering the deposit in court. SDCL § 43-32-24 . The tenant may sue for the return of the security deposit in South Dakota’s Small Claims Court with the recovery limit being $12,000.
Security Deposits and Tax Filing in South Dakota
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 South Dakota
Receipt Requirements: The landlord is not required to provide a receipt for the security deposit in South Dakota.
Security Deposit Holdings in South Dakota: South Dakota laws do not require landlords to hold security deposits separate from other funds.
Security Deposit Interest in South Dakota: South Dakota laws do not require landlords to provide interest on held security deposits.
Commercial Security Deposits. Any real property that is not residential, agricultural land, or any quantity of municipal lots is considered commercial property. After the termination of tenancy, the landlord is required to provide the tenant with the remaining security deposit and provide the tenant with a written statement showing the deductions of the deposit within 60 days.
Upon the request of the tenant, the landlord shall provide an itemized accounting of any deposit that was withheld within 90 days after the termination of tenancy. If the landlord fails to comply with the above, the landlord forfeits all rights to withhold any portion of the security deposit, and if the landlord is found in bad faith, the tenant may also receive up to $200 in punitive damages.
New Property Owner’s Responsibility: If the original landlord decides to sell or transfer ownership of the rental property, he or she is required to assume responsibility for the security deposit funds and their return. The new landlord may not change the deposit or terms of the lease agreement until a new lease is signed.
For additional questions about security deposits in South Dakota, please refer to the official state legislation, South Dakota Landlord-Tenant Statutes.