Guides

How to track security deposits

A security deposit is not your income. It is money you hold for the tenant, and you may have to give it back. That makes it worth tracking carefully from the day it arrives. Here is a simple way to do it.

What to record when you receive it

• Amount. Exactly what was paid.
• Date received. Write the real date, and give the tenant a receipt.
• Who paid it. The tenant name and the unit.
• Where it is held. The name of the bank account, and the last four digits only, if your state requires a certain kind of account or you simply want a clear trail.
• Lease details. The lease start date and any terms about the deposit.

Keep it separate from rent income

Do not mix deposits with your rent receipts. In your books, a deposit is usually treated as money you owe back, not as earnings. Many landlords keep it in its own account, and some states require that. How a deposit is handled for taxes is a question for your accountant, so ask before you file anything.

In your records, give deposits their own line or their own ledger. If you keep a rent history for the tenant (see our guide to a tenant payment history record), note the deposit there as a separate item so it never gets counted as a rent payment.

Document the condition at move-in

Most deposit disputes come down to one question: what condition was the place in when the tenant arrived? Answer it before they unpack.

• Walk through each room with the tenant and write down existing damage, marks, and wear.
• Take dated photos or video of floors, walls, appliances, and fixtures.
• Have both of you sign and date the checklist, and give the tenant a copy.

At move-out

Repeat the walkthrough and compare it to the move-in notes. Then work through these steps:

1. Take new dated photos of the same areas.
2. Separate normal wear from actual damage. Rules on what counts as normal wear differ by place, so check your state’s guidance.
3. Check the tenant’s rent ledger for any unpaid balance.
4. List each deduction on its own line with a short description and the amount.
5. Keep the bills, receipts, or written estimates that support every deduction.
6. Return the rest of the deposit, with your itemized list, in the way and by the date your state requires.

Do not take a deduction you cannot explain and back up. Vague charges like “cleaning” with no detail are what tenants challenge.

Deadlines and interest vary by state

States differ on how fast you must return a deposit, whether you must pay interest on it, whether it has to sit in a separate account, and how much you can ask for in the first place. We are not giving legal advice here, and we are not going to quote numbers that might not apply to you. Look up your own state’s rules, and your city’s if it has any, before you collect a deposit and again before you return one.

A short checklist

• Receipt given and a copy kept
• Amount, date, and holding account written down
• Deposit kept apart from rent income
• Signed move-in checklist and photos
• Move-out walkthrough with new photos
• Itemized deductions with proof
• State deadline and interest rules checked

LedgerLatch tracks rent for landlords with 1 to 10 units, and it never collects or moves money. It is free for one unit.