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

Texas Property Code 92.102 is the primary governing documentation on how landlords in the state are meant to handle the collection and return of the security deposit in the state. The idea behind the clauses, when followed correctly by landlords, is to ensure that all parties in a lease agreement are adequately protected.

The information below covers everything you need to know as a landlord from giving advance notice of surrender to dealing with a situation where no tenant's forwarding address was provided to how the deposit factors into the last month's rent, and much more!

But, before we dive into everything…

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Now, let’s dive in. 

Maximum Deposit

Texas is not a state that imposes a limit on the amount landlords are allowed to charge as a security deposit. Nevertheless, it's always a good idea to set the bar within reason. A common choice is to go with an amount equal to one month's rent.

As of September 2021, a provision was made in Texas law that allows landlords to have their tenants optionally pay a monthly fee alongside each month's rent instead of paying a security deposit. Should this option be provided and selected by the tenant, then there must be written notice of:

1. The respective amounts of the security deposit and the monthly fee
2. The right of the tenant to choose to pay the security deposit and stop using the monthly fee at any time
3. The right to pay a security deposit instead of a monthly fee

This legal provision also allows landlords to purchase the requisite insurance to protect the rental using the monthly fee. Note, however, Texas security deposit laws state that the fee should not be greater than a reasonable cost to get and administer the insurance.

Additionally, should a landlord decide to file a claim under the insurance policy, Texas Property Code 91.111 states that a tenant cannot be made to cover the same damages.

Apart from the monthly fee, Texas law also allows the landlord to require an additional pet deposit. This, however, does not apply to the disabled who may be using a service animal. Should the said service animal cause any property damage, the tenant will still be liable to pay.

Allowable Deductions

Security deposits in Texas may be used to cover any of the following cost centers:

1. Cost of any charges to the security deposit that may have been provided in the leases
2. The cost associated with any damages a Texas landlord may have incurred because of lease breaches
3. Cost of any damage that was not caused by normal wear and tear (covered later)
4. Any unpaid month's rent
5. Any unpaid utilities
6. Any payment for changes made to the premises
7. Cleaning fees associated with returning the premises to the same level of cleanliness it would have been when the tenancy begun

There is an exception that prevents the landlord from retaining the security deposit if the lease was breached by the tenant's backing out of it. This provision under Texas security deposit laws will hold if either the tenant or landlord finds a new tenant that the landlord approves of.

Note, however, that should a replacement tenant be found, the landlord has the right to make the following deductions from a Texas security deposit:

1. Expenses that are incurred in securing a new tenant
2. Whatever cancelation fee the lease may have provided for

Covering the Cost if the Tenant Owes Rent

There's always the concern of a tenant wishing to use the security deposit to cover the last month's rent. This is sometimes referred to as "living out the deposit." However, Texas security deposit laws explicitly prohibit tenants from doing this.

Any tenant who refuses to pay the last month's rent as expected because of an intent to use the security deposit can end up in a position of being liable for an amount three times that of the rent owed, plus any reasonable attorney's fees.

Normal Wear & Tear

Whenever the property is in a condition different from that which it was at the beginning of the tenancy, there may be a situation of normal wear and tear or one where there is property damage at play. The difference is as follows:

• Damage speaks to destruction or deterioration that can be attributed to the tenant. This could be from either negligence or deliberate acts.
• Normal wear and tear speaks to the kind of expected deterioration that comes with using a property exactly in the way that it was meant to be used, provided there is no carelessness, accident, misuse, or abuse by the tenant or any guests that may have been brought to the property. These are seen as minor issues such as loose door handles, fading paint, stained bath fixtures, etc., that would occur naturally.

Returning Deposits

Texas laws governing a tenant's security deposit also speak to how returns are supposed to be handled:

• There is no obligation on the landlord's part to return the tenant's security deposit unless a forwarding address has been provided. Once this is done, the full deposit or what may be left after deductions must be returned by the 30th day after the tenant surrenders the premises.
• Should there be any deductions, the landlord must provide an itemized list of deductions that were made within the same 30 days. This will not apply if the tenant owed rent and there is no ambiguity surrounding the amount of rent owed and the need to pay.
• If a landlord does not provide an itemized list of all deductions as required, there may be a requirement to pay any reasonable attorney's fees and the said landlord will also lose the right to withhold or charge against the security deposit.
• A rental agreement can include a requirement for advance notice of surrender to be provided as a condition for returning the tenant's security deposit. This must be in either conspicuous bold print or underlined in the agreement or it cannot be applied as a condition.
• A landlord should mail security deposits in full or post deductions via postmarked United States mail to comply with duties surrounding the proper return of the security deposit.
• When a landlord fails to provide the security deposit on time, this is deemed an act of bad faith. In this case, there may be a requirement to pay a $100 fee, three times the security deposit amount, and any reasonable attorney's fees. Tenants can sue the landlord in a Justice Court for an amount not exceeding $20,000.

Taxes

How this is handled depends on the landlord's keeping of a portion of a security deposit or the entire thing.

The IRS does not require that security deposits be considered income when they are received. In fact, landlords are advised against this considering that they may be required to return the deposit. The only time they become taxable is when the requirement to return them is no longer present.

In this case, the period for which the security deposit is required should correspond with when the forfeiture took place. For example, if a deposit was collected in 2018, but only forfeited in 2022, it would only be required to be reported as income in 2022.

Note that the IRS has provided three easy rules to follow that provide a roadmap on when a security deposit should be reported as income:

1. Should there be a clause in the lease agreement that allows the use of the full or a part of security deposits as a last month's rent payment, then the applicable portion should be reported as income once it is received.
2. If there is a forfeiture because of a lease or an application to unpaid rent, the report must be made in the same year that the forfeiture took place.
3. Whenever a security deposit is used to cover chargeable expenses, then there is only a need to report it as income if the landlord also includes the cost of expenses or repairs.

Other Rules

There are a few other requirements to bear in mind under Texas security deposit laws. Pay attention to the sections below.

Responsibility of a New Rental Property Owner

Should a property be sold while a lease is subsisting, the new owner will inherit the previous owner's duty to refund the security deposit once the lease has ended. This obligation will only be passed on in any of the following cases:

1. The new owner agrees to assume the responsibility
2. The old landlord is relieved of the responsibilities based on a written notice
3. The new owner receives the security deposit from the previous owner

The new landlord must then give the tenant written notice in the form of a signed statement acknowledging the exact dollar amount of the security deposit and that the responsibility no longer lies with the previous owner for it.

Receipts

There is no requirement under Texas security deposit laws to provide a receipt for deposits. Nevertheless, landlords must maintain adequate records of all such sums received.

Lease without a Security Deposit

Should there be a situation where a landlord either did not collect a deposit or did not require one and the tenant is liable for anything that would have been chargeable, the landlord must provide written notice of the claims, after which reporting to a debt collector or consumer reporting agency may take place.

The only exception to this rule is if the tenant fails to provide a forwarding address.

Wrapping Up

The requirements of Texas security deposit law must be followed by landlords to ensure compliance and no unnecessary fees. You must be familiar with landlord-tenant laws to this end, so you will be acutely aware of how to handle any disputes surrounding unpaid rent, damage, etc.

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