leasing

security deposit

A security deposit is money a tenant pays the landlord at the start of a lease to protect against unpaid rent or damage beyond normal wear and tear. Many states limit the amount, require it to be held in a separate account, may require interest, and set deadlines for returning it with an itemized list of deductions after the tenant moves out. Rules vary by state.

Exam tip: Remember that normal wear and tear cannot be deducted, and that a security deposit is not the same as prepaid last month's rent unless the lease says so.
Example: A tenant pays a $1,500 deposit. At move-out the landlord deducts $200 for a broken window and returns $1,300 with an itemized statement.

1. A property manager receives a tenant's security deposit and advance rent. These funds must be deposited in the:

Answer & explanation

Answer: D. Money belonging to others goes into a trust account; depositing it in an operating account is commingling.

Related terms & state variants

commingling lease lessee lessor trust account

Sources

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Last verified: 2026-10-23