Security deposit deductions: what you can charge, and how to prove it

The short version

You can deduct for unpaid rent and for damage beyond normal wear and tear. You cannot deduct for a unit simply getting older. And whatever you deduct, you need to prove it: move-in photos, move-out photos, and receipts. Without those, you are arguing your word against the tenant’s, and that is a fight you usually lose.

Wear and tear vs. damage

• Wear and tear: faded or lightly scuffed paint. Damage: holes, large marks, unapproved paint colors.
• Wear and tear: carpet worn along walking paths. Damage: pet urine, burns, rips.
• Wear and tear: loose door handles, worn grout. Damage: broken doors, cracked tile.
• Wear and tear: a few small nail holes from hanging pictures. Damage: anchors pulled out of drywall, TV mount holes (unless allowed).
• Wear and tear: sun-faded blinds. Damage: bent or missing blinds.

Step by step: handling a move-out

• Pull out the signed move-in inspection and photos before you walk the unit.
• Walk the unit with the same checklist, room by room, and photograph the same angles.
• Mark each item as OK, wear and tear, or damage. Only damage goes on the deduction list.
• Get receipts or written estimates for each repair. Prorate items like paint and carpet by age.
• Write an itemized statement: each item, the cost, and the remaining refund.
• Send the statement and refund before your state’s deadline, by a method you can prove.
• Keep the file (photos, receipts, statement, proof of mailing) for years, not weeks.

A real-world example

Here is how I think about it. Say a tenant moves out after two years. The paint is dull and there are a few small picture-hanging holes. That is wear and tear; I touch it up on my own dime. But there is a fist-sized hole behind the bedroom door and the blinds in the living room are bent. Those are damage. I have move-in photos showing both were fine, so I list the drywall patch and the replacement blinds with receipts, deduct only those, and return the rest on time. Clean, documented, and nothing to argue about.

Mistakes that cost landlords

• No move-in inspection, so there is nothing to compare against.
• Charging full replacement cost for a 6-year-old carpet.
• Vague line items like “cleaning – $300” with no detail.
• Missing the state deadline. In some states that can forfeit your right to deduct anything, or add penalties.
• Holding the deposit to cover something that is not tied to the lease.

Make it a system

In the Navy we ran everything off a checklist, because a checklist does not have a bad day. Deposits are the same. Do the move-in inspection right, and the move-out mostly takes care of itself. The Move-In / Move-Out Inspection Kit gives you the room-by-room checklist, photo log, and itemized deduction statement I use.