Security deposits are the safety net for San Diego landlords. The tenant pays a sum of money that sits in an account until the end of the lease. If the tenant causes damage or fails to pay rent, the landlord can use the security deposit to make themselves whole.
As with many other aspects of owning rental property, there are laws you must follow when charging security deposits. This guide will help you navigate this aspect of owning rental property.
Security Deposit Limits
You do not have to collect security deposits. However, many landlords choose to do this because it provides an extra layer of protection. If you charge a security deposit, the maximum allowed is two times the monthly rent for an unfurnished unit.
If the unit is furnished, the maximum security deposit can be three times the monthly rent. Commercial property does not have a security deposit limit.
California Assembly Bill 12
The law is evolving, which means that what applies today could be very different tomorrow. California Assembly Bill 12 passed with a vote of 50 to 18. If the bill gets signed into law, landlords cannot charge more than one month's rent as the security deposit.
Returning Security Deposits
A landlord has 21 days from the lease termination to return the security deposit. If it's not returned, the landlord has to send a letter explaining why it was withheld and include a list of itemized charges.
Security Deposit Deduction
You cannot withhold the security deposit for anything you like. California law allows landlords to withhold the cost of repairs for damage caused by the tenant that goes beyond normal wear and tear.
You can withhold the cost of cleaning, but only to bring the unit back to its original condition when the tenant moved in. Finally, you can deduct the cost of any outstanding rent.
Are Security Deposits Income?
You need to report your rental property income on your yearly taxes. However, your security deposit is not considered income by the IRS. This is because you may have to return the deposit to the tenant at the end of the lease.
If you keep the security deposit after the lease, you may need to report it as income. This is when the money becomes not returnable.
Can You Have a Pet Security Deposit?
If you allow pets in a rental property, you may consider charging an additional pet security deposit. California law does not explicitly speak to the charging of pet rent. However, the total security deposit charged cannot exceed the limits outlined earlier.
Properly Handle Security Deposits
As a landlord, charging security deposits is a valuable tool for property protection. However, you need to follow California law to charge the legal amount, hold the money correctly, and return it in a timely manner. Not following the laws can put you in legal hot water.
Working with a property management firm can help you properly charge, handle, and return your tenant's security deposits. The San Diego Property Management team stays current on the latest landlord/tenant laws to best assist property owners.
Schedule a consultation today and let the experts help you with your rental property security deposits.