Leasing
Security deposit
Money held to secure defined rental obligations, subject to jurisdiction-specific custody, deduction, accounting, and return rules.
Glossary
Leasing
Primary references on this page:
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Texas Property Code Chapter 92: security depositsA security deposit is money held to secure obligations identified by the lease and applicable law. It is different from a current rent payment, a nonrefundable fee, advance rent, or unrestricted operating cash, even when all of those amounts are collected near move-in.
The governing jurisdiction can regulate the amount, permitted uses, account or notice requirements, interest, transfer on sale, documentation, deductions, itemization, and return timing. California, Texas, and North Carolina statutes illustrate materially different structures; none supplies a national rule.
Tax treatment also depends on the arrangement. The IRS distinguishes a deposit intended to be returned from an amount designated as final rent or applied to rent. Preserve the lease language, receipt, account record, transfer history, move-in baseline, move-out evidence, invoices, itemization, tenant communication, and refund or retention record.
Do not treat the account balance as automatically available cash or decide a deduction from a generic checklist. Confirm the current state and local rules, property or program coverage, lease, condition evidence, ordinary-wear boundary, and deadline before releasing funds or posting a retained amount.
Deposit, advance rent, and fee are different classifications
The label on a payment is not enough. Ask whether the amount is intended to be returned, applied to a future rent period, earned for a separately permitted service, or held against a defined obligation. The answer affects custody, ledger presentation, tenant communication, and possible tax treatment.
Keep the tenant subledger and bank custody record connected without treating them as the same thing. A transfer between bank accounts does not earn the deposit, and a ledger deduction does not prove that local law permits retention.
Move-out evidence and reconciliation
Reconcile the opening deposit, lawful transfers, interest if applicable, authorized deductions, refunds, and remaining balance. Tie condition deductions to the move-in baseline, dated move-out observations, scope, invoice or reasonable support, and the rule reviewed.
Preserve the original balance and each adjustment. A correction should use a linked reversal or additional refund rather than deleting history. This makes the tenant statement, bank movement, and accounting record explain the same result.
Follow the deposit from agreement through disposition
The transaction record begins with the lease and applicable rules, then records receipt, payer, tenant, property, amount, custody or transfer evidence where required, and the obligation the deposit secures. At move-out, preserve possession date, condition evidence, proposed deductions, supporting invoices or estimates, required communications, approval, payment or transfer, and proof of final disposition.
Suppose $2,000 was received and a $350 charge is documented under the agreement and applicable rules. The arithmetic produces a potential $1,650 refund. It does not prove that the deduction is legally permitted, properly valued, timely communicated, or supported for that jurisdiction. Those conclusions require the lease, facts, and current authoritative law.
Evidence resolves the transaction; the liability page owns accounting control
A useful evidence file connects the signed lease, deposit receipt, bank or custodial evidence where required, move-in condition record, move-out record, dated photos, invoices or estimates, itemization, refund evidence, dispute communications, and transfer record. Missing evidence should remain an explicit exception rather than being replaced by an assumption.
This page explains the tenant transaction and evidence lifecycle. Security-deposit liability explains tenant-level schedules, general-ledger liability, bank or custodial reconciliation, and correction controls. Neither page supplies universal rules for limits, segregation, interest, deductions, notices, transfer duties, or deadlines; use current jurisdiction-specific authority and qualified review.
This is general educational information, not legal or tax advice. Rules vary by state and locality and change over time — check your local law and confirm specifics with a qualified professional.