In Washington D.C., the collection and return of security deposits are primarily regulated under the DC Code § 42–3502.17 These laws provide a set of rules that Washington D.C. landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in Washington D.C.
In Washington D.C., landlords can charge up to 1 month’s rent as a security deposit. There is no limit on pet deposits, but service animals may not incur a pet deposit fee (but may contribute to damages).
Security Deposit Holding Requirements in Washington D.C.
Receipt Requirements: The landlord is required to provide a receipt for the security deposit in Washington D.C. unless the payment is made by a personal check that states the purpose of the payment. (14 DCMR § 306)
The receipt should include:
- Amount received.
- Date received.
- Purpose of payment.
- Any additional amounts owed.
Security Deposit Holdings in Washington D.C.: Washington D.C. laws require landlords to deposit any collected security deposits into an escrow account within 30 days of receipt, which may include deposits from multiple properties. (14 DCMR § 308.4)
Security Deposit Interest in Washington D.C.: Washington D.C. landlords must deposit security deposit funds in an interest-bearing account. (14 DCMR § 308.3)
The account shall earn the institution’s interest rate as of January 1st for 6 months following the date, then the interest rate as of July 1st will be earned for the next 6-month time period. (14 DCMR § 311.1)
Interest must be paid to the owner upon termination of the tenancy for any 12-month or longer lease, unless deductions are made. If the interest is withheld in bad faith, the tenant may recover triple the interest in damages and is liable for a civil fine of up to $5,000. (14 DCMR § 311.2)
Any interest earned at a higher rate than the statement savings rate offered by the financial institution holding the escrow account is subject to a 30% administrative cost which the landlord may collect, with the remainder being owed to the tenant. (14 DCMR § 311.2(1))
At the end of each calendar year, the landlord must post a notice in the building lobby or leasing office that identifies where the security deposits are being held and the interest rate earned during each 6-month period throughout the year. At lease termination, they must provide the tenant with the interest rates for each 6-month period during the duration of their tenancy. (14 DCMR § 308.7)
Inspection of Premises in Washington D.C.
In Washington D.C., a landlord is entitled to schedule and conduct an inspection of the rental property that may be used to determine what deductions, if any, are to be made against the security deposit.
The landlord must provide 10 days’ notice to the tenant before inspection occurs, which should be within 3 business days before or after the date of lease termination. (14 DCMR § 310)
Allowable Deductions on Security Deposits in Washington D.C.
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.
- Any reasons listed in the rental agreement.
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 Washington D.C.
- “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.
These responsibilities include:
- 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.
As part of these obligations, tenants may 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 Washington D.C.
Time Frame: A Washington D.C. landlord has 45 days to return the held security deposit, plus interest, if there are no deductions made. If deductions are to be made, the landlord must notify the tenant during this same time frame.
Within 30 days of notifying the tenant of deductions, the landlord must provide an itemized statement that includes any deductions made.
Method of Return: To satisfy the landlord’s obligation to return funds under Washington D.C. security deposit law, the landlord must either deliver the return or notice in-person or through certified mail. If the return cannot be completed after good-faith effort, this shall not constitute failure to comply with the time frame for return but does not relieve the landlord of their obligation to return the funds. (14 DCMR § 309.4)
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 45-day limit, the tenant stands to recover up to the full security deposit and interest.
A landlord who willfully withholds the security deposit in bad faith is liable for triple the withheld funds and interest in damages, plus any legal fees associated with its recovery in court.
Security Deposits and Tax Filing in Washington D.C.
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 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.
- 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 D.C.
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 either transfer the deposit to the new owner and notify the tenant of their name and address, or return the deposit directly to the tenant and notify the new landlord of its return.
For additional questions about security deposits in Washington D.C., please refer to the official state legislation, Washington D.C. Landlord-Tenant Statutes 308-311.