Becoming a landlord in Charlotte, NC, is risky, especially if a bad tenant falls through the cracks. One bad tenant can impact your cash flow by damaging property or failing to pay rent.
There are security deposit laws in place to protect landlords and mitigate these risks. Tenants who pay security deposits have an incentive to be upstanding residents.
How much is a security deposit? What are the laws in North Carolina? Keep reading to find out.
How Much Is a Security Deposit?
How much is a security deposit in North Carolina? The state has security deposit limits depending on the length of the rental agreement.
Typical leases are one year long. The maximum security deposit amount in this situation is two months of rent. For example, if rent is $1,500 monthly, the maximum you can charge as a security deposit is $3,000.
You can choose to charge less than two months of rent depending on the tenant's creditworthiness.
Weekly leases have a maximum deposit amount of two weeks of rent. Monthly leases have a maximum security deposit of one and a half months of rent.
To avoid complications, consider offering yearly leases. You can also hire a property management company that understands the security deposit laws in the state so you don't have to.
Pet Security Deposits
Landlords in North Carolina have the right to charge a pet security deposit. Rental property fees like these must be reasonable, but there is no clear fee limit. Unlike security deposits, pet deposits are nonrefundable.
Tenants with disabilities with service animals don't have to pay security deposits for pets. The Federal Fair Housing Act protects renters with emotional support or service animals.
In the instance that a service animal causes property damage, the tenant is required to pay for the damages.
Security Deposit Deductions
Security deposit laws protect landlords from risky tenants. Landlords can use the security deposit when the lease ends for valid reasons. In most cases, you would use the security deposit to cover:
- Unpaid rent
- Unpaid utilities
- Property damages exceeding normal wear and tear
- Leaving before the end of the lease period
- Court costs
- Eviction fees
North Carolina emphasizes the difference between normal and excessive wear and tear.
Normal Wear and Tear
Regular wear and tear represents regular deterioration that happens from regularly using a property. Normal wear and tear include:
- Loose handles
- Stained fixtures
- Mold
- Fading paint
- Lightly scratched glass
Landlords cannot use a tenant's security deposit to cover these types of damages.
Excessive Damage
Excessive wear and tear occurs because of the tenant's negligence or abuse. It often includes broken items, broken appliances, and thorough stains.
Landlords can use all or a portion of the security deposit to cover these repair or replacement costs.
Storing Security Deposits
Charlotte landlords have two options for holding security deposits once collected from the tenant. You can hold the security deposit in a trust account or post a surety bond.
If you choose to store security deposits in trust accounts, the account must be established in an approved state or federally insured-institution.
You can post a bond from a licensed company in North Carolina as well. The bond has to be in the amount of the original security deposit.
You must inform the tenant within 30 days of the deposit of the address and name of the financial institution or insurance company holding the security deposit.
Laws in North Carolina don't require landlords to provide the tenant with a receipt of security deposit storage. It might be beneficial to do this anyway to keep tenants happy and in the loop.
Returning Security Deposits
Landlords have 30 days from the final lease date to return the security deposit to the tenant. If you have to deduct damages from the security deposit, you must include an itemized list of deductions.
Send the deduction list via first-class mail or deliver it to the tenant in person. If you don't make an itemized list, you won't be able to withhold the tenant's security deposit at all.
If you cannot reasonably determine the cost of repairs, you must create an interim list of deductions within 30 days. Once you have the exact amounts, provide a final accounting list for withheld funds within 60 days.
Failure to Return Security Deposits
The law states that there are consequences for landlords if they fail to return the security deposit on time. If you don't provide the tenant with their funds or an itemized list within the legal timeframe, you risk being sued by the tenant.
You forfeit your rights to hold any security deposit amount. If you are sued, you could be required to pay for damages, the deposit, and legal fees.
If you don't have the tenant's new address, you must hold the security deposit for at least six months. If the tenant doesn't collect the funds, the deposit is considered forfeited.
Tax Filing
Security deposits are considered taxable income if the landlord has no obligation to return them to tenants. You must report security deposits as income in the year they were forfeited by your tenants.
To comply with federal law, landlords must follow specific IRS guidelines. These guidelines dictate when security deposits count as rental property income.
Any deposit used to cover unpaid bills or a breach in the lease must be reported as income in the same year it was forfeited. Landlords need to report security deposits as income if they include repair costs as expenses.
Landlords and tenants might agree to use the security deposit amount to cover the last month of rent. In this case, the landlord must report the security deposit as income.
Understanding North Carolina Security Deposit Laws
As a landlord in Charlotte, it's crucial to understand North Carolina security deposit laws. So, how much is a security deposit? The amount you charge will depend on your rent price and lease duration.
If these security deposit laws seem too complicated, outsource this task and others to expert property managers. Bottom Line Property Management has more than 55 years of combined experience between our leaders.
We've gathered a positive rapport in the local area by helping landlords like you. We go the distance for our clients. Contact us today to learn more about our services.
