Home › Guides › Tracking security deposits

How to track security deposits

What to record for every deposit, how much the rules differ from place to place (with official examples from Quebec, Ontario and British Columbia), how deposits are treated for tax, and a move-out workflow that holds up.

Updated October 19, 2026 · by Tidy Landlord

Why deposits deserve their own log

A deposit is the tenant's money that you're holding, not your income. How much you can take, where you keep it, whether it earns interest and how fast you must return it are all set locally, and many disputes come down to a missing date or photo. A dedicated log, one row per deposit, fixes that.

What to record for each deposit

  • Tenant name(s), property and unit, lease start and end dates.
  • Deposit type: security or damage deposit, pet damage deposit, or last month's rent (rent deposit). Different types follow different rules in some places.
  • Amount, date received, payment method and receipt number.
  • Where it's held (account name and last four digits), if your rules require a separate or trust account.
  • The interest rule, and interest paid or credited each year.
  • Move-in inspection date, report and photo file names.
  • Move-out date, the date you received the tenant's forwarding address in writing, and your return deadline.
  • Each deduction with a description, amount and receipt or quote; the refund; the date and method returned.
  • Status: Held, Move-out coming, Return due, Returned, or Overdue.

The rules depend on where the rental is

There is no single US or Canadian rule. Three Canadian provinces show how different the rules can be:

Quebec: you can't require a deposit

Article 1904 of the Civil Code of Québec says the landlord may not exact any sum of money other than the rent, in the form of a deposit or otherwise. In advance, the landlord may require only the first rent payment, and never more than one month's rent. It also bars requiring postdated cheques. The Quebec government has noted that tribunal decisions have accepted a deposit the tenant offered freely and voluntarily, but the waiver must be clear and unequivocal, with no pressure from the landlord (Québec.ca). In practice, don't ask for one.

Ontario: last month's rent only

According to the Landlord and Tenant Board, a landlord can collect a rent deposit on or before the start of the tenancy, up to one month's rent (one week's rent if rent is paid weekly). It can only be used as rent for the last month or week, not for damage. The landlord must pay interest on it every year at the rent increase guideline rate, and may ask for a top-up when the rent lawfully increases.

British Columbia: half a month, 15 days to return

In B.C., a security deposit and a pet damage deposit can each be at most half of one month's rent (Province of B.C.). The landlord can keep part of a deposit only with the tenant's written permission or a Residential Tenancy Branch order. Within 15 days of the later of the end of the tenancy and receiving the tenant's forwarding address in writing, the landlord must return the deposit with interest or apply for dispute resolution, or may be ordered to pay double. Skipping the required move-in or move-out inspections can also cost the landlord the right to claim against the deposit for damage (Residential Tenancy Act, ss. 24, 36 and 38).

United States: check your state and city

In the US, deposit rules are mostly set by state law and sometimes by city ordinances: maximum amounts, whether the deposit must be held separately or earn interest, what you can deduct, and the deadline and format for returning it with an itemized list. Look up your state's landlord-tenant law before you collect a deposit, and add a column to your log for each rule that applies.

How deposits are treated for tax

  • US: don't include a security deposit in income when you receive it if you plan to return it. If you keep part or all of it because the tenant didn't live up to the lease, include the amount you keep in income that year. A deposit that will be used as the final rent payment is advance rent, taxable when you receive it (IRS Pub. 527).
  • Canada: interest you pay tenants on rental deposits is deductible on Form T776, line 8710 (CRA Guide T4036).

Either way, keep deposits out of your rent totals in your books so you don't report them as income by mistake.

A move-out workflow that holds up

  1. When notice is given, enter the move-out date in your log and look up your return deadline.
  2. Schedule the move-out inspection, invite the tenant, and use the same checklist as at move-in.
  3. Photograph every room and compare with the move-in report. Separate normal wear and tear from damage.
  4. Get the tenant's forwarding address in writing.
  5. Itemize any deductions your local rules allow, with receipts or quotes.
  6. Return the balance with the itemized statement before the deadline, and record the date and method.
  7. Keep the file (inspection reports, photos, statement and proof of payment) with your tax records.

Frequently asked questions

Is a security deposit taxable income?

In the US, not when you receive it if you plan to return it; any part you keep is income in the year you keep it, and a deposit to be used as the last month's rent is advance rent, taxable when received (IRS Pub. 527).

Can a tenant use the deposit as the last month's rent?

It depends on where you are. In Ontario, a rent deposit must be applied to the last rent period. In British Columbia, the standard terms in the Residential Tenancy Regulation let a tenant use the security deposit as rent only with the landlord's written consent. Check your local rules.

Do landlords have to pay interest on deposits?

In some places. Ontario landlords pay interest yearly on rent deposits at the rent increase guideline rate, and B.C. landlords add interest at the rate set by regulation when they return a deposit. Elsewhere, check your state or provincial rules.

Sources

This guide is general information, not legal or tax advice. Landlord-tenant, human-rights and privacy rules differ by state, province and city and change over time. Check the official sources linked above and the rules where your rental is, and consult a lawyer or your local housing authority if you're unsure.

More free help: all landlord guides · free landlord calculators