Key Takeaways
- Indiana has no deposit limit, but overcharging can hurt rental demand.
- Deposits must be returned within 45 days, with itemized deductions for damages only.
- Improper withholding risks legal action, including repayment, court costs, and attorney fees.
Landlords in Indiana know the importance of collecting security deposits from new residents. The deposit can help provide you with a financial cushion against certain negligent actions from difficult residents.
It can help cover things like unpaid rent and utilities, property damage, and cleaning costs, after the resident has moved out.
This right, however, isn’t without some responsibilities. Under the Indiana landlord-tenant law (Indiana Code Title 32 Article 31), you must handle the resident’s deposit in a particular manner for legal compliance.
In today’s blog by PMI Lafayette, you’ll learn what you can and cannot do when handling residents’ security deposits.
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Indiana Security Deposit Limit
Some states impose limits on how much security deposits landlords can charge new residents. This is, however, not the case for Indiana landlords. You can charge whatever amount you want.
That said, please be cautious not to overcharge residents, as that can make your property less desirable in their eyes. Consequently, you may have a hard time trying to fill vacancies.
Additional Pet Deposits
Indiana landlords can require residents to pay additional pet deposits. The only exception is if the resident is disabled and has a service dog or an emotional support animal.
Under the Federal Fair Housing Act, “disability” is a protected class. And, landlords are required to provide residents with reasonable accommodations, including suspending their pet policies.
Storing Security Deposits
Some states require landlords to store their residents’ security deposits in interest-bearing accounts. Others require that the funds be kept separate in financial institutions.
However, in Indiana, there are no such rules. You can keep the funds in whatever manner you like. Just make sure to have the funds available after the resident moves out.
Sale of Rental Property
After selling a rental property in Indiana, you must transfer the resident’s deposit to the incoming landlord. The incoming landlord will then have to store the deposit according to the same rules.
You must then notify the residents about the transfer of their security deposit to the new landlord.
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Security Deposit Deductions
After the resident moves out of their rented unit, you can make certain deductions from their security deposit. In Indiana, allowable deductions can help:
Cover any unpaid rent and/or utilities.
Cover the rent due under the lease resulting from early lease termination.
Cover the costs of damage exceeding normal wear and tear.
Cover any monetary damage resulting from a breach of the lease.
And just like most states in the country, there is no legal limit as to how much you can charge the resident.
The only requirement would be to ensure that the charges are reasonable and reflect actual expenses incurred.
Normal Wear and Tear vs. Damage
As a landlord in Indiana, you should familiarize yourself with the state’s definition of the two terms. This will ensure minimal conflicts and misunderstandings regarding security deposit deductions.
Indiana case law defines normal wear and tear as the gradual deterioration of a property due to its appropriate use over time. Examples include loose door handles, gently worn carpets, and stained bath fixtures.
As a landlord, you must not make deductions from the resident’s security deposit to fix these. The costs are yours to bear!
Indiana also defines “damage” as destruction caused to a rental unit due to abuse or negligence by a resident. Common examples include broken tiles, missing fixtures, accumulation of dirt, and holes in the wall.
The resident is responsible for fixing these repairs before moving out of the unit. If they move out without fixing them, you can make appropriate deductions from their security deposit.
Security Deposit Returns
In Indiana, landlords must return security deposits to residents within 45 days after moving out. You must return it either as a check or a money order.
If you have made any deductions on the deposit, you must send the itemized list of deductions by mail to the resident’s forwarding address. In the notice, you must include the amount you have deducted, as well as the estimated costs of the damage.
Wrongfully withholding a resident’s security deposit can have serious legal and financial repercussions. Renters have the right to file for damages in court up to the security deposit amount, plus court and attorney fees.
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Conclusion
There are multiple benefits to collecting security deposits from residents. However, this also comes with several responsibilities, which you must adhere to for legal compliance. If you have a question or need expert help in managing your rental property, look no further than PMI Lafayette.
We are a full-service property management company that provides professional residential, commercial, and realty services in Lafayette, IN. With nearly 20 years in the property management industry, you can’t go wrong by choosing us. Get in touch to learn more about how can help you minimize stress and maximize profits!
Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Property management fees, laws, and tax regulations may change or vary based on individual circumstances. Always consult a qualified attorney or accountant before making financial decisions related to your rental property.
