- Standard Limit / Maximum Amount: There is no limit (read more)
- What Can Be Deducted: Unpaid rent, cost of damage to the unit, charges under the lease & costs incurred by the landlord due to breach of the lease (read more)
- Time Limit for Return: 30 days after the tenant vacates the premises (read more)
- Penalty if Not Returned on Time: 3 times the security deposit, $100 & attorney’s fees (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. There is no limit on the amount Texas landlords can charge as security deposit from which unpaid rent, cost of damage to the unit, charges under the lease and costs incurred by the landlord due to breach of the lease may be deducted. It must be returned within 30 days after the tenant surrenders the premises. Otherwise, the landlord may be made to pay a penalty of $100, 3 times the security deposit and attorney’s fees.
Maximum Security Deposit Charge in Texas
There is no limit on the amount that Texas landlords can charge as security deposit.
Allowable Deductions on Security Deposits in Texas
Texas landlords can use the security deposit to cover the following:
- Cost of damage to the rental unit, that is not from normal wear and tear
- Cost of charges to the security deposit as provided in the lease
- Cost of damages incurred by the landlord from the tenant’s breach of the lease.
As an exception to the above, the landlord may not retain the security deposit by reason of the tenant breaching the lease by backing out of it if either the landlord or the tenant finds a replacement tenant that the landlord approves of and the replacement tenant moves in on or before the commencement of the original lease.
However, if it is the landlord who finds the replacement tenant, the landlord may deduct from the security deposit either of the following amounts:
- A cancellation fee that is provided in the lease
- Actual expenses incurred by the landlord in securing a new tenant.
Can the deposit be used by the tenant as last month’s rent? No, Texas law on security deposits expressly prohibits the tenant from using the security deposit in lieu of the last month’s rent. A tenant who refuses to make the final rent payment because of wanting to use the security deposit may be held liable for 3 times the rent withheld plus reasonable attorney’s fees.
“Normal Wear and Tear” vs. Damage in Texas
- “Normal wear and tear” refers to the deterioration of the property that happens when the property is used as it was meant to be used but only when that deterioration occurs without negligence, carelessness, accident, misuse, or abuse by the tenant or the people the tenant brings there. They are minor issues that occur naturally like aging and expected decline as a result of everyday living. These can include 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,” on the other hand, is deterioration or destruction that is the tenant’s fault, either through deliberate acts or as a result of negligence during the tenancy period.
Check out our article on wear and tear vs. damage to get a better idea of the difference.
Returning Security Deposits in Texas
Time Frame: The landlord must return the security deposit, or what’s left of it after deductions, on or before the 30th day after the tenant gives back or surrenders the unit. If there are deductions from the security deposit, the landlord is required to give the tenant an itemized list of the deductions within the same time period, unless the tenant owed rent when the premises were surrendered and there was no question on the obligation to pay or the amount of the rent owed.
Note, however, that the landlord may require advance notice of surrender of the premises as a condition for returning the security deposit if this condition is included in the lease and is underlined or is printed in conspicuous bold print in the lease.
Failure of the Tenant to Provide a Forwarding Address: It is the tenant’s responsibility to provide the landlord with a forwarding address where the landlord can mail the security deposit and the itemized list as required. The landlord’s duty to return the security deposit and provide an accounting for the same will not be demandable until the tenant provides a forwarding address.
Moreover, the landlord will be assumed to have complied with duties regarding the return of the security deposit and accounting therefor if the landlord mails them via postmarked US mail within the time limit.
Failure to Return the Security Deposit on Time: If the landlord fails to return the security deposit or what’s left of it on time and he is found to have acted in bad faith (i.e. withholds the same knowing that the landlord does not have reasonable grounds to do so), the landlord may be made to pay the following:
- 3 times the amount of the security deposit; and
- Reasonable attorney’s fees.
Failure to Provide Itemized List of Deductions: If the landlord fails to provide the itemized list as required, the landlord loses the rights to hold or charge against the security deposit and may even be required to pay reasonable attorney’s fees.
Security Deposits and Tax Filing in Texas
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 Texas
Receipt Requirements: The landlord is not required to provide a receipt for security deposits in Texas. However, the landlord is required to keep accurate records of the security deposits he receives.
New Property Owner’s Responsibility: If the rental property is sold while the lease subsists, the buyer inherits the previous owner’s obligation to refund the tenant’s security deposit when the lease ends. However, the liability of the old landlord for the security deposit will only be transferred to the when one of the following happens:
- The new owner receives the deposit from the old landlord;
- The new owner agrees to assume responsibility for the same; or
- The old landlord is relieved of such liability in a written agreement.
The new owner must give the tenant a signed statement that contains the exact amount of the security deposit and confirms that the new owner has acquired the property and will thereafter be responsible for that tenant’s security deposit.
Lease without security deposit: If the landlord did not collect or require security deposit but the tenant is liable for charges that would have been chargeable to the security deposit if the same was collected, the landlord must give the tenant written notice of the claims on or before the landlord reports them to a consumer reporting agency or a debt-collector unless the tenant failed to provide a forwarding address.
Frequently Asked Questions
How much can a landlord charge for a security deposit in Texas?
There is no maximum security deposit a landlord can charge in Texas. Texas law on security deposits does not currently put a limit on the amount of security deposit. However, counties and cities can impose a limit, so it is best to check the local ordinances to be sure.
Can you use the security deposit as last month’s rent in Texas?
In Texas, a tenant isn’t allowed to use the security deposit as last month’s rent. Texas law on security deposits expressly prohibits the tenant from using the security deposit instead of paying the last month’s rent.
In fact, a tenant who refuses to make the final rent payment because of wanting to use the security deposit may be held liable for 3 times the rent withheld plus reasonable attorney’s fees.
What can a landlord deduct from a security deposit in Texas?
A landlord in Texas can legally deduct the following from the security deposit: cost of damage to the rental unit, charges to the security deposit as provided in the lease, and cost of damages incurred by the landlord that resulted from the tenant’s breach of the lease.
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 Texas?
In Texas, a landlord is allowed to charge a cleaning fee if the rental agreement allows the landlord to do so. Texas laws allow landlords and tenants to agree on what additional deductions or charges may be made to the security deposit.
What is considered normal wear and tear in Texas?
Normal wear and tear in Texas is defined as deterioration that results from the intended use of a dwelling, including, breakage or malfunction due to age or deteriorated condition, but the term does not include deterioration that results from negligence, carelessness, accident, or abuse of the premises, equipment, or chattels by the tenant.
How long does a landlord have to return the security deposit in Texas?
In Texas, a landlord has 30 days from the move out date to return the security deposit. If the landlord is retaining some part of the security deposit, the landlord must also provide the tenant with a written statement of the deductions within the same timeframe.
Note, however, that the landlord may require advance notice of surrender of the premises as a condition before the security deposit may be returned if this condition is included in the lease and is underlined or is printed in conspicuous bold print in the lease.
What happens if a landlord does not return the security deposit in Texas?
If a landlord in Texas does not return the security deposit within 30 days from the move out date, the landlord may be liable for a penalty of $100, 3 times the security deposit and attorney’s fees on top of the amount withheld.
Are security deposits taxable in Texas?
Security deposits in Texas 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 Texas, please refer to the official state legislation, Texas Property Code § 92.101 to § 92.110, for more information.