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 statutory limit on the amount Washington landlords can charge as security deposit from which charges allowed in the lease may be deducted. It must be returned within 21 days from the end of the lease. Otherwise, the landlord may be made to pay a penalty of up to double the deposit.
Maximum Security Deposit Charge in Washington
There is currently no statutory limit on the amount Washington landlords can charge as security deposit. However, it is best to check county or city ordinances as there might limits in some localities.
Written Rental Agreement and Move-In Checklist
If the landlord wishes to collect security deposit from the tenant, the landlord must provide the tenant with a written rental agreement or lease. The agreement must specify the terms and conditions under which the landlord may retain or deduct from the security deposit. This includes damage to the premises. So, unless the landlord specifies that the security deposit may be used to cover for the cost of repairs at the end of the lease, the landlord may not use it for the same.
The landlord is also required to provide the tenant with a move-in checklist that specifically indicates the state of the premises before the tenant moved-in. This includes cleanliness and all the existing damage at the time.
Failure of the landlord to comply with these written requirements may entitle the tenant to a full refund of the latter’s deposit (even before the lease ends) plus costs of suit and damages. The checklist must be signed by both the landlord and the tenant.
Security Deposit Holdings in Washington
Washington landlords are required to keep the tenants’ security deposit separate from their own funds. Landlords must either:
- Place the security deposit in a trust account meant only for security deposits of the landlord’s tenants;
- Deposit it in account with a state or national banks and trust company, bank, savings and loan association, or credit union; or
- Place it with a Washington licensed escrow agent.
Upon doing so, the landlord must provide the tenant with a written notice containing the name and address of the place where the latter’s security deposit is being held. If the landlord moves the security deposit to another institution, the landlord should also provide the tenant with another written notice with the details of the same.
Allowable Deductions on Security Deposits in Washington
The landlord can use or make deductions from the security deposit for purposes specified under the lease agreement. The usual charges are:
- Unpaid rent;
- Cost of repairs for damage to the unit caused by the tenant;
- Unpaid utilities used by the tenant; or
- Cost of restoration needed for pet damage.
To clarify, the landlord is not always allowed to use the security deposit to cover repairs for damage caused by the tenant. There must be a statement in the rental agreement allowing the landlord to do so. Also, the landlord cannot make deductions for damage that is due to normal wear and tear.
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 Washington
- “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 and 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,” refers to the destruction that is a result of abuse, negligence or carelessness by a tenant during the tenancy period. Damage to the rental property can negatively impact its usefulness, value, normal function. Damage can include pet damage (heavily stained and ripped carpet), broken tiles, hole 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.
Returning Security Deposits in Washington
Time Frame: The landlord must return the security deposit, or whatever is left of it, within 21 days after the termination of the lease or after the tenant has vacated the unit, whichever is later. If the tenant abandoned the unit, then the landlord must return the same within 21 days of finding out that the tenant has abandoned the unit.
Also, if there are deductions on the security deposit, the landlord is required to inform the tenant of the specifics of the same in an itemized list on a written notice to be delivered to the tenant together with the remaining amount to be returned within the same timeframe.
The landlord can return the security deposit and the itemized list of deductions personally or via first-class mail to the tenant’s last known address.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit or provide the list of deductions within the 21 days, the landlord forfeits any right to retain any part of the security deposit and may be made to pay the security deposit plus up to double the amount the landlord is withholding, costs of suit and attorney’s fees.
Security Deposits and Tax Filing in Washington
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 Washington
Receipt Requirements: The landlord is required to provide tenants a receipt for the security deposit in Washington.
Security Deposit Interest in Washington: Washington laws require security deposits to be deposited into a separate account but the landlord is not required to pay interest on them. If the account in which the landlord has placed the security deposit earns interest, the interest will belong to the landlord unless there is a written agreement stating that the same will accrue to the tenant.
Non-Refundable Fees: Any money or fee collected by the landlord as security deposit is refundable. If a certain sum or fee is to be non-refundable, the landlord cannot refer to the same as a “deposit.” Also, for any fee to be non-refundable it must be clearly and specifically stated as such in the lease or rental agreement, otherwise, it will be considered as refundable.
Application of Tenant’s Payments: Payments made by the tenant to the landlord must first be applied to any rent that is due and owing before applying to other payments due to the landlord. This rule is meant to protect the tenant from possible eviction for failure to pay the rent when the tenant owes different payments to the landlord. For example, if the tenant owes the landlord rent, instalment payments on security deposits and administration fees, the landlord must first use any payment from the tenant to cover whatever rent is owing even if the other debts are bigger or were due earlier. Only when there is no more rent due will the landlord be allowed to apply the tenant’s payment for something else. This avoids the situation where the tenant keeps paying but is still in default in rent which means still in danger of eviction.
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. The old landlord must transfer the security deposit to the buyer when the property is transferred. The buyer will be responsible for providing the tenant with a notice detailing where and how the security deposit is being held.
In case the property is foreclosed upon, the original owner whose property was foreclosed upon must either refund the security deposit or transfer the same to the new owner. Failure to do so would make the original owner liable for up to 2 times the deposit, costs of suit and attorney’s fees.
For additional questions about security deposits in Washington, please refer to the official state legislature, Revised Code of Washington § 59.18.260 to 59.18.285, for more information.