Every time a landlord rents one of their investment properties, they will collect a security deposit from the tenant. This security deposit is collected to protect the landlord in case the tenant damages their property. When the tenant moves out the landlord is able to deduct the cost of repairing any damages and then return the remainder of the deposit to the tenant. The law dictates what a landlord can and cannot deduct from the security deposit. Make sure you understand what you can legally deduct from the security deposit.

 

What you can legally deduct breaks down into what is called damages. Landlords cannot deduct the cost of normal wear and tear. There is a fine line of distinction between the two. If you deduct for normal wear and tear, the tenant can sue you to get the amount that you deducted returned to them. Sometimes courts will award the tenant treble the amount if they win the court case. This is why you need to understand the difference between damages and wear and tear.

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Damages
Damages are physical damages to your property. Damages can also be caused by negligence. This negligence can be caused by the tenant or their friends or family. Some examples of damages are when the tenant gets angry one night and puts a hole in the wall. Another example is when the scrap up the hardwood floor when moving in a new television or sofa into the property. These are damages that are caused directly by the tenant. If the tenant spills pink lemonade on the carpet and that leaves a stain then that is considered damages. Just walking on the carpet is considered wear and tear which I discuss below.

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Wear and Tear
Through the day to day use of a property, there will be wear and tear that exists. For example the carpet might have imprints based on high traffic areas. If the tenant does not eat in the dining room but instead eats on the sofa in the dining room, the carpet might show a large amount of wear and tear due to the heavy traffic usage between the two rooms. The landlord is not able to subtract for this wear and tear. Some states consider the minor marks on the painted wall to be wear and tear but any physical hole in the wall would be considered damages.

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Every landlord need to understand the difference between damages and wear and tear. You are able to deduct for damages but not for wear and tear.

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Filed under: Landlord Tip • Landlording • Property Management • Real Estate Investing

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