Texas Security Deposit Laws in 2024

What is Considered a Security Deposit in Texas?

A security deposit is generally defined in Texas as a refundable sum of money paid by a tenant to a landlord at the start of a rental lease to provide financial protection in case the tenant damages the unit or fails to meet terms of the lease. Some key things tenants should know about security deposits in Texas:

Security deposits are refundable

Though security deposits are intended to cover damages or unpaid rent/fees during the lease, Texas requires landlords to refund any remaining deposit to the tenant after move-out, minus any lawful deductions. 

Nonrefundable move-in fees are not security deposits

Landlords can require tenants to pay nonrefundable fees like an application fee or administrative fee. These fees are not security deposits since they are not refunded. Move-in fees should not exceed actual costs incurred by the landlord.

Lease must list all deposits & fees

Landlords must provide tenants with a written list of all deposits and fees required. This includes security deposit, pet deposit (if any), nonrefundable fees, etc. 

1 month's rent cap (unfurnished unit)

Texas sets a maximum security deposit amount of 1 month's rent for an unfurnished unit. For a furnished rental, landlords can charge up to 2 month's rent as security deposit. 

Deposit can't be used by landlord for other purposes

Security deposits remain the legal property of the tenant while held by the landlord. A deposit can only be applied to expenses incurred due to tenant defaults per the lease. Landlords can face penalties if deposit is misused.

Maximum Allowable Security Deposit in Texas

Landlords in Texas are limited in how much they can collect for a security deposit based on the type of rental unit.

• For unfurnished units without pets, landlords can charge up to an amount equal to 1 month's rent. For example, if the monthly rent payment is $1,000, then the maximum security deposit would be $1,000.
• For furnished rental units, such as those that come with major appliances, washer/dryer hookups, furniture provided, etc., landlords can collect up to 2 months' worth of rent for the security deposit. Using the same $1,000 monthly rent example, the maximum security deposit for a furnished unit would be $2,000.

Tenants with pets will also see higher allowable security deposits in Texas. Most pet deposits are equal to one additional month's rent, which would allow a total security deposit of 2 month's rent for an unfurnished unit or 3 month's rent for a furnished rental.  

In certain high-cost cities like Austin, Dallas, and Houston, some landlords attempt to charge security deposits equal to 3 or more months' rent even for unfurnished units without pets. However, Texas Property Code only allows this with special approval from the Texas Real Estate Commission for properties under distress or in areas the Commission has deemed a housing shortage exists. Absent this approval, tenants should not pay more than the limits described above.

Requirements for Handling Security Deposits

Under Texas property code §§ 92.104 and 92.103, landlords must handle security deposits in specific ways:

Keep deposits in a separate bank account

Any security deposits collected by landlords must be kept in a separate bank account used only for that purpose. Landlords cannot mix deposits with their personal funds or other rental property funds. 

Cannot commingle with other funds

Security deposits must remain separated in their own account and cannot be commingled with the landlord's personal funds or other accounts, even if those other accounts are also used for the rental property. 

Allowable Deductions from Deposits

Landlords in Texas can only deduct from security deposits for damages that go beyond normal wear and tear - damages that would not be reasonably expected from normal use of the rental during the average tenancy. Costs of general cleaning, routine maintenance, repainting, or redecorating cannot be deducted from the security deposit. 

Landlords have 30 days after the tenant moves out to provide an itemized deduction list detailing any damages or costs they intend to deduct from the security deposit. This written list must be accompanied by the balance of the deposit (if any) returned to the tenant. Landlords cannot make deductions for pre-existing problems with the unit or generalized cleaning/repainting between tenants - deductions must specifically address tenant-caused damages and associated repair/replacement costs. 

• Some examples of deductions that may be allowable:
• Holes or excessive marks on walls not treatable via standard repainting 
• Stains or burn marks on carpeting requiring full replacement 
• Missing or broken appliances, fixtures, or furnishings 
• Damage to doors, cabinets, flooring beyond normal wear

If no deductions are being made, the full security deposit must still be returned to the tenant with an accompanying written statement within 30 days after they vacate the unit. Failure to do so can result in penalties owed to the tenant under Texas law. Tenants are advised to thoroughly document the condition of the unit at move-in and move-out times to contest any improper deductions.

What Counts as Normal Wear and Tear?

Normal wear and tear refers to the minor expected deterioration that naturally occurs from a tenant living in and using a rental unit over time. Landlords cannot deduct from a security deposit for issues that fall under normal wear and tear. 

Here are some common examples of normal wear and tear that are not valid reasons for a landlord to make deductions:

• Minor carpet stains or small tears, especially in high-traffic areas or where furniture rests on carpet. This includes water stains or pet stains. 
• Small marks, scuffs, nail holes or chips on walls. This includes scrapes on wall trim or paint that got stuck on from moving furniture.
• Grease, food splatter or browning on ovens, stove drip pans, exhaust fans or microwave interiors.
• Fading, peeling, flaking or chipping paint. This especially applies to painted areas exposed to sunlight, heat or moisture over time.
• Water stains in sealant around sinks, tubs and showers, especially in older buildings. Some sealant deterioration naturally happens over time with heat and humidity.
• Minor cracks in grout around tubs or sinks.

Issues like these are not considered "damage" since they naturally develop as a rental unit ages and is used over time. A landlord cannot expect to deduct for every minor expected issue in their rental unit after a tenant moves out. Unless a tenant has damaged an item beyond normal aging or excessively dirtied it, deductions are usually unlawful.

Returning Security Deposits to Tenants

Landlords in Texas must return a tenant’s security deposit, or any remaining balance of it, within 30 days after the tenant moves out. Landlords must also provide an itemized list of any deductions that were taken out of the security deposit.

Failure to return the security deposit within 30 days will result in the landlord forfeiting the right to keep any amount of the security deposit and can result in penalties, including being sued by the tenant to get up to 3 times the amount of security deposit wrongfully withheld, plus the tenant's attorney fees.

If a landlord does not provide an itemized list of deductions, they also forfeit the right to legally keep any amount of the security deposit money. Tenants should receive in writing:

• The exact dollar amount of the returned deposit
• An itemized list of any deductions for damages or other charges 
• A refund of any remaining balance

If deductions were taken, the list must specifically state what each deduction was for and how the amounts were calculated. Things like “cleaning fees” or “painting costs” without further itemization are not sufficient.

Tenants should review the itemized deduction list right away to ensure there are no unfair or arbitrary charges. If tenants disagree with any deductions, they have the right to dispute them according to the procedures outlined in their lease. Common ways to dispute improper deductions include trying to reason with the landlord first or taking legal action in small claims court.

The landlord has only one chance to return a tenant’s security deposit properly, so tenants have powerful protections if the landlord fails to meet these legal requirements in Texas. Consulting a lawyer is recommended for guidance on the appropriate next steps to recover deposit money that was wrongfully withheld.

Taxes on Security Deposits

When it comes to taxes, security deposits are fairly straightforward for both landlords and tenants in Texas. 

Landlords do not have to pay income taxes on security deposits they collect from tenants. The deposits are not considered rental income. As long as the landlord properly handles the security deposit in a separate bank account and returns it within 30 days after the tenant moves out, no taxes are owed.

Likewise, tenants do not have to pay taxes on security deposits when they are properly returned by the landlord after move out. For example, if a tenant paid a $1000 security deposit and receives the full $1000 back at the end of their lease, they do not have to claim the $1000 as income. 

Security deposits are not taxable income for landlords or tenants, as long as they are handled properly under Texas law. The deposits belong to the tenant and are merely being held by the landlord during the tenancy. As long as deposits are returned in full within 30 days after move out, there are no tax implications for either party.

Transferring Deposits When Selling Rental Property 

When a landlord sells a rental property, the security deposits for any tenants must legally transfer to the new owner. The previous landlord cannot keep or use tenants' security deposits once the property is sold.

Texas law requires landlords to transfer all security deposits for current tenants to the new owner at the time of sale. This ensures tenants are not left without their deposit or required to pay a new deposit to the new owner.

The purchase agreement for the rental property should include details on the transfer of tenants' security deposits held by the seller. The seller must provide documentation of the deposit amounts to the buyer. 

It is the new owner's responsibility to manage the tenants' security deposits after taking ownership of the rental property. They inherit the legal obligations and responsibilities around handling and returning the deposits.

Tenants' rights are protected when rental properties change ownership in Texas. Their security deposit transfers seamlessly to the new landlord and tenants do not need to pay any additional deposit or fees solely because the property was sold.

Importance of Receipts for Deposits

It is crucial for tenants to retain documentation showing payment of a security deposit. When first paying the deposit, make sure to get a written receipt from the landlord indicating the amount paid and the date. Keep this receipt in a safe place, as it will be needed if any dispute arises over the deposit. 

Tenants should also keep careful records of any deductions taken from the security deposit by the landlord when moving out. The landlord must provide tenants with an itemized list of deductions along with the balance of the deposit within 30 days of move-out. Review this documentation closely and keep a copy for your records, as it will be required if a tenant needs to file a claim for return of any wrongfully withheld portion of the deposit. Having proper documentation is key to proving when and how much of the security deposit was originally paid, as well as validating any disputed deductions.

Renting Without a Security Deposit

Some landlords may be willing to waive the security deposit requirement for qualified tenants with excellent credit and rental history. However, the landlord will usually charge a higher monthly rental rate to offset the lack of security deposit held.

Renting without a security deposit can be advantageous for some tenants, but also comes with some drawbacks to consider:

Pros of Renting Without a Deposit

• Avoid paying a large upfront deposit which can be difficult for some renters 
• Deposit money can be used instead for moving costs, furniture, etc.
• One less deposit to wait for the return of when moving out

Cons of No Deposit

• Higher monthly rental rates, sometimes $50-100 more per month
• Landlord has no deposit to deduct damages from if tenant causes excessive damage
• Tenant is fully responsible for any needed repairs at move-out 

Renting without a security deposit requires excellent credit, income, and rental history to qualify. The tenant must prove they are low risk and have the means to cover any damages if they occur. Approval is granted on a case-by-case basis at the landlord's discretion. 

Overall, renting without a security deposit can benefit the right tenant but also carries increased financial risk for both parties. It's important to fully understand the pros and cons when considering this option.