In Wisconsin, the collection and return of security deposits are primarily regulated under the WI Stat § 704.28. These laws provide a set of rules that Wisconsin landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in Wisconsin
In Wisconsin, there are no limits on how much a landlord may charge as a security deposit. Landlords generally charge between one and two months’ rent as a security deposit.
Additional Pet Deposits. Under Wisconsin’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.
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.
Requirements Before Accepting a Security Deposit in Wisconsin
Prior to accepting a security deposit from the tenant, Wisconsin landlords are required to provide notice to potential tenants about the following situations. (ATCP 134.04)
- Code Violations: Any known code violation that affects the dwelling unit or the common areas associated with it that presents a threat to the health of the tenant must be disclosed if it has not been corrected before lease commencement.
- Conditions Affecting Habitability: Uninhabitable conditions such as a lack of proper temperature regulation (less than 67° F), structural problems, or a lack of/unsafe electrical, sewage, or plumbing systems must be disclosed.
- Utility Obligations: The landlord must disclose which utilities are included in rent and should provide the utility charge breakdown for shared meters before collecting a security deposit.
- Right to Check-In Procedures: Landlords must notify potential tenants of their right to inspect the dwelling for existing damages or request (in writing) the list of physical defects that were charged to the previous tenant. Damages that were remedied before the new tenancy commenced should also be disclosed.
This can be requested within seven days of the start of tenancy and should be produced within 30 days of the request or within seven days of notifying the previous tenant of deductions that were made.
Allowable Deductions on Security Deposits in Wisconsin
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.
- Unpaid utilities owed to the service provider or landlord directly.
- Unpaid municipal fees that are obligated to the tenant.
- Nonstandard rental provisions included in the lease.
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.
Nonstandard Rental Provisions
A rental agreement may include additional reasons for deductions against the security deposit when they are provided and agreed to in a nonstandard rental provisions document. This must be titled “NONSTANDARD RENTAL PROVISIONS” and be provided before collecting a security deposit. The document should include specific reasons for the deductions that the tenant is agreeing to. By signing the nonstandard rental provisions page, they are agreeing to the deduction criteria outlined in the page.
“Normal Wear and Tear” vs. Damage in Wisconsin
- “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 their obligations as a tenant. This obligation is to maintain the property and return it in the same condition it was received.
To comply with these obligations, 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.
The tenant is also obligated not to perform certain actions during possession of the unit, such as:
- 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 Wisconsin
Time Frame: A Wisconsin landlord has 21 days to return any unused portion of the security deposit along with a written itemized list of damages deducted. The written list must include accounting for all amounts withheld and shall describe, in detail each item of physical damage or any other claims made against the security deposit. This period begins on the date of termination presented in the lease agreement or upon discovery of the vacated property.
To comply with return requirements, the landlord must hand-deliver or mail the written statement to the forwarding address of the tenant. If no forwarding address is provided, the landlord is not liable for damages due to late return if they follow the correct return procedure of mailing the statement to the last-known address. However, the tenant retains their other rights relating to the return of their security deposit.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 21-day limit, the tenant stands to recover up to double the withheld sum, plus legal fees associated with recovering the deposit in court. A tenant may sue in Wisconsin’s Small Claims Court up to a maximum of $10,000.
Security Deposits and Tax Filing in Wisconsin
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.
- 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 Wisconsin
Receipt Requirements: The landlord is required to provide a written receipt for the security deposit in Wisconsin. The receipt should include the nature of the deposit and the amount collected. If the tenant pays by check and describes the purpose of using it as a security deposit, the landlord may hold the check without providing a receipt unless requested to provide a receipt by the tenant.
Security Deposit Holdings in Wisconsin: Wisconsin laws do not require landlords to hold security deposits separate from other funds.
Security Deposit Interest in Wisconsin: Wisconsin laws do not require landlords to provide interest on held security deposits.
New Property Owner’s Responsibility: If the original landlord decides to sell or transfer ownership of the rental property, they must either:
- Transfer the deposit to the new owner and notify the tenant of their name and address; or
- Return the deposit to the tenant directly and notify the new owner that the deposit has been returned.
For additional questions about security deposits in Wisconsin, please refer to the official state legislation, Wisconsin Landlord-Tenant Statutes.