Maryland Security Deposit Laws for 2024 | Deductions, Returns, & Rights

All security deposit rules fall under the MD Real Prop Code Ann. § 8-203. Laws surrounding the collection and return of security deposits in Maryland should get followed accordingly by both the tenant and landlord to ensure a safer and better rental experience.

The following page will cover everything surrounding a tenant's security deposit in Maryland, as well as critical factors that landlords must keep in mind.

But, before we dive into what those are…

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Now, let’s dive in. 

Overview

• Maximum Charge - Up to two months' rent.
• Return Deadline - Up to 45 days after the end of the lease.
• Penalty - Up to three times the amount of the security deposit plus reasonable attorney's fees.
• Approved Deductions - Damages that exceed ordinary wear and tear, unpaid rent, and damages coming from a breach of lease.

Maximum Deposit

The state of Maryland specifies that a tenant's security deposit cannot exceed two months' rent. In this state, the number of tenants doesn't affect the security deposit amount.

In case the landlord charges and collects a higher security deposit amount, the tenant can claim up to three times the charged amount, as well as reasonable attorney's fees, within two years of the termination.

Pet Deposits in Maryland

Maryland law allows property managers/landlords to charge a pet security deposit. According to the Federal Fair Housing Act, people with disabilities may not have to pay a pet security deposit if they use service animals, as they're entitled to full access to housing.

However, if the tenant's service animal causes any damage to the unit, they will have to pay for any damages that exceed ordinary wear and tear. If the landlord fails to provide equal access to housing to a person with disabilities, they may face legal consequences.

Allowable Deductions

Landlords in Maryland can use security deposits to cover some particular damages after the tenant leaves the leased premises.

According to the Maryland security deposit law, a landlord can use security deposits to cover the following:

• "Breach of Lease" damage.
• Damages that go beyond ordinary wear and tear.
• Unpaid rent.
• Unpaid utilities.
• Lost rental income.
• Excessive cleaning costs.

It's vital to note that tenants may use the security deposit as payment for last month's rent, as long as the landlord agrees. If they don't, then the security deposit will get managed separately from any pending rent balance.

"Damage" vs. "Wear and Tear"

One of the most vital aspects surrounding security deposits is understanding what constitutes damage and ordinary wear and tear.

"Damage" represents any "destruction" caused to the rental unit due to the tenant's negligence or abuse. If these damages affect the value or normal function of the unit, then the landlord can use the security deposit to cover these damages. Factors like broken tiles, holes in the wall or ceiling, broken windows, or pet damage count as damage.

On the other hand, ordinary wear and tear refer to the regular deterioration that most rental units go through. In most cases, this won't count as negligence or abuse, as long as the tenant proves they used the leased premises accordingly.

Ordinary wear and tear include worn carpets, loose handles, stained fixtures, scratched glass, fading paint, and more. Anything that goes beyond ordinary wear and tear will count as "Damage."

If a landlord fails to understand the difference between the two, they may either face legal problems or not be able to use the security deposit to cover for some damages.

Holding Requirements

A common question surrounding Maryland security deposit law is where landlords can store security deposits. It's vital to note that landlords must deposit the security deposits into an approved account within 30 days of receiving the money. If the landlord fails to do this, they may face legal consequences.

Generally speaking, landlords can deposit the security deposits at federally insured financial institutions in Maryland in the form of insured certificates of deposit.

Tenant's Security Deposit Receipt Requirements and Vital Information

Every landlord in Maryland must provide the tenant with a security deposit receipt with the following information:

• Any rights the tenant has to receive any unused funds at the end of the lease.
• A list of damages for which the landlord will get a deduction from the deposit; this should get sent via first-class mail to the provided forwarding address. The landlord has 45 days to send this information.
• A date of inspection and the tenant's right to be present at said event.
• A statement regarding the tenant's right to charge up to three times the security deposit amount plus reasonable attorney's fees if the landlord fails to follow the Maryland security deposit law.

Maryland landlords must keep a copy of the receipt for at least two years after the tenancy ends. It's vital to remember that Maryland law requires landlords to hold the security deposit in a separate, interest-bearing account within the specified time frame.

What Happens If the Landlord Fails to Provide a Receipt?

Landlords must pay the tenant a fee of $25.00 if they fail to provide the tenant with a written receipt for the security deposit.

Security Deposit Interest Requirements

Landlords must keep the security deposit plus interest in the designated account as insured certificates. This interest amount tends to grow for one year at the US Treasury yield curve rate, or 1,5% per year.

The interest for the security deposit will accrue at monthly intervals, starting from the day the property manager collects the deposit. Moreover, the interest must be payable on security deposits that are $50.00 or more.

In case the landlord held the security deposit for over six months, or if they held a tenancy for less than one month, they don't have to pay for the security deposit plus interest.

Tenant Obligations

According to security deposit law in Maryland, landlords can only use the deposit amount for repairs if the tenant didn't comply with the lease terms. It's vital for Maryland landlords to understand all the rules surrounding their tenant's obligations before making any deductions.

Tenants must, therefore, comply with the following:

• Using all appliances reasonably and with care.
• Keeping smoke detection/carbon monoxide detection systems working as intended.
• Getting rid of any waste that could accumulate in the property.
• Keeping all the appliances and fixtures within the property safe and clean.
• Leaving the premises in the same conditions that they received them in.
• Comply with the specified number of guests allowed in the premises.

In that sense, tenants cannot do the following, as this would count as "damage" or "breach" of the lease:

• Have any unpaid rent.
• Change the locks on any doors unless there's an emergency.
• Disturb neighbors and their peaceful enjoyment of the unit.
• Destroy or remove any part of the unit without permission.
• Do any criminal activity, including gambling, prostitution, and using illegal/controlled substances. Moreover, the tenants cannot promote any of these activities while they're living in the unit.

If there was any breach of the lease terms, and this caused damages to the property, the tenant pays for these damages.

Requirements

The following section will outline everything surrounding returns, according to Maryland security deposit law.

Every landlord in Maryland has up to 45 days to return any used amount of the security deposit -plus interest-. Landlords must also provide the tenant with an itemized list of any damages deducted from the deposit, including any unpaid rent.

The 45 days begin the day the lease ends. Landlords must use first-class mail to send the written notice with any deductions. It's vital to note that, if landlords don't make the itemized report for the damages, they will be required by law to return the entire security deposit amount.

As mentioned before, if the landlord doesn't return the deposit within the specified time frame, they may have to pay up to three times the security deposit amount plus reasonable attorney's fees.

Tax Filing

A security deposit could be taxable or not depending on whether it was returned or used.

How Taxable Income Works

Generally speaking, a security deposit isn't considered income upon collection once the tenancy begins. The security deposit could become taxable income when landlords don't have a legal obligation to return it. In fact, they could qualify this as a write-off.

Landlords can use the following IRS guidelines to determine whether they should report their security deposit as income or not:

• The landlord must report the deposit as income if it was forfeited to cover unpaid rent or any lease breaches. Landlords must declare the amount left as income in the same year it was applied.
• If the landlord considers repair costs as expenses, then they should report these expenses as income. On the contrary, if they don't include repair costs as expenses, they don't need to report them as income.
• Landlords must report any security deposit amount that was used to cover the final month's rent, as long as all parties agreed to do it.

Miscellaneous

Now, you know the basics of the security deposit law in Maryland. However, there are a few additional rules that you should be aware of if you want to have the best experience possible with your tenant.

Keep reading to know more about these rules:

Surety Bonds

In Maryland, a tenant may be able to use a surety bond instead of a cash security deposit. Landlords cannot force a tenant to use a surety bond, and these bonds are subject to the same rules as a regular deposit.

It's vital to note that a surety bond agreement includes the tenant/landlord and the surety institution. Here, the surety bond institution will represent a co-signer. Tenants will have to pay, on average, up to 4% of the surety bond amount.

Consider the following information regarding a surety bond inclusion in Maryland:

• A surety bond payment is non-refundable. Moreover, tenants could be required to reimburse any amounts the surety paid the landlord.
• A surety bond isn't insurance for the tenant and is instead used to protect the landlord in cases of unpaid rent, breaches in the agreement, and any damages that exceed normal wear and tear.

Tenants are still responsible for covering damages that exceed normal wear and tear and unpaid rent damage, even if they have a surety bond. As with the security deposit, if there are any damages that exceed normal wear and tear, the landlord can send an itemized list of damages via first-class mail.

Here, the tenant will have the option to dispute this itemized list or pay the landlord directly. In case the tenant didn't acknowledge (or didn't pay) the damages within 10 days, the landlord will have the legal right to file a complaint with the surety bond.

As a protection measure for the landlord, the surety bond will pay these damages to them, and it will then ask the tenant for re-payments. Keep in mind that tenants cannot be charged more than two months of rent. On the contrary, they could charge the landlord up to three times what they were initially charged plus attorney's fees.

New Property Owner's Responsibility

Properties that undergo a transfer of ownership will require the new landlord to cover both the prospective owner and tenant for the security deposit plus interest, including returns and holdings.

Any landlord who can't transfer the security deposit plus interest to the new property owner will be held liable for any unpaid amounts.

• The new owner should receive written notice of these changes, including the following information:
• The full name of every tenant and their last known address.
• The date the previous landlord received the deposit, and how much it was.
• The financial institution that holds the funds and interest rates.

Walk-through Inspections

All Maryland tenants have the legal right to request a walk-through inspection to assess any existing damages within 15 days of starting the rental agreement.

Moreover, tenants can be present at their move-out inspection. Landlords should send a written notice for this inspection via first-class mail.

Keep in mind that landlords must include these statements in their rental agreement. If they don't provide any notice for these inspections and the tenant's rights to request one, they will forfeit the right to have any amount of the security deposit.

Bottom Line

It's critical for a Maryland landlord to understand security deposit rules for their rental property, as that will let them recover from any excessive damages that their property gets.

Understanding your rights is essential to have a reasonable rental property lease experience. As long as both parties understand and agree upon the terms stated in the written lease, they're more likely to avoid legal issues.

Security deposit guidelines can vary slightly depending on the state. As you can see, there are many resources that you, as a property manager, should keep in mind. Feel free to check DoorLoop's resources surrounding the Maryland state and make your leasing experience better.

On the other hand, if you have any questions surrounding your particular leasing case, we recommend you seek legal help and resources from a reputable attorney. These experts are trained to protect any party and defend their rights.