According to Indiana legislation, landlords may request a security deposit from renters as a one-time payment. The deposit is the tenant's property, even though it is in the landlord's hands unless the occupant violates the terms of the lease.

In Indiana, IN Code § 32-31-3-9 principally regulates the acquisition and return of security deposits. Moreover, to ensure the safety of all participants, these regulations put forth a set of guidelines that property managers and landlords are required to follow.

This article will provide the information you need to comply with Indiana security deposit law.

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Now, let’s dive in. 

Maximum Deposit

There is no maximum security deposit charge, according to Indiana law. This means that Indiana landlords can charge as much as they feel is fair. However, it's important to remember that city and county laws may place a restriction on how much you can charge.

Pet Deposits

The landlord is permitted by Indiana security deposit law to request an extra amount to be used as a pet deposit. This deposit is intended to be used for any damages caused by an animal brought onto the property by the tenant.

Keep in mind that this deposit may not be requested from those with disabilities that rely on service and emotional support animals. However, tenants must provide proof of their disability, and service animals cannot be aggressive, or a landlord can charge this additional deposit.

Allowed Deductions

Once the lease period has ended, or the contract has been terminated prematurely, a landlord may deduct from the tenant's security deposit for certain reasonable fees and expenses, according to Indiana security deposit laws. These include the following:

  • Unpaid rent
  • The cost of water or sewer charges paid
  • Damage to the rental property, which would include damage to smoke or carbon monoxide alarms 
  • Penalties for the early termination of the residential rental agreement
  • The cost of repairing damages that were not the result of normal wear and tear
  • Expenses incurred as a result of the tenant's breach of contract

Keep in mind that landlords in Indiana may not deduct the cost to repair damages that are caused by normal wear and tear. These losses occur naturally when the tenant uses the property as intended and not as a result of intentional or accidental damage.

Returning Deposit

After the lease is terminated and the property is returned to the landlord, the landlord has 45 days to repay the security deposit if any portion of it remains. An itemized description of damages, along with a cheque or money order for the security deposit or any remaining amount, must be sent to the renter's mailing address.

Please note that the deadline will not apply if the tenant has not provided their forwarding address in writing.

If the landlord takes any money out of the security deposit in Indiana, they must document such withdrawals in writing and give an itemized statement.

An explanation of the damaged belongings, their replacement or repair cost and the sum that will be subtracted from the security deposit should all be included on the statement. This list must be given to the tenant within 45 days.

Selling Rental Unit

If the lease is still in effect when the rented property is sold, the new owner will be responsible for returning the security deposit to the tenant. However, for the first year following the sale of the unit, the original landlord is still accountable to the renter for the security deposit unless:

  • After the sale is complete, the former landlord passes the security deposit to the new owner 
  • The new owner recognizes that they are responsible for the deposit and notifies the renter of this

Final Thoughts

As a landlord, it's important that you know what the Indiana security deposit law says about handling a tenant's security deposit. After all, the security deposit belongs to the renter, and only certain allowable deductions may be made in accordance with Indiana law.

Now that you know what the law has to say about the security deposit in Indiana, you can ensure that you have a fuss-free tenancy and don't end up in a legal battle once the tenant vacates the rental property.

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What happens if a landlord fails to refund the security deposit within 45 days? Will they have to pay reasonable attorney's fees?

The renter is entitled to the entire security deposit as well as reasonable attorney's fees if the landlord doesn't refund the security deposit within the allotted 45 days. Moreover, the tenant has the option of bringing a claim to small claims court.

Do Indiana landlords have to provide a statement of deductions or written notice of the amounts that have been charged to the security deposit?

Yes. All landlords in Indiana must return the security deposit along with an itemized statement within 45 days of the termination of the lease.

Are landlords required to provide a receipt when collecting security deposits?

No, Indiana law doesn't require landlords to issue a receipt for security deposits.

Are security deposits considered taxable income?

Security deposits are not considered subject to income tax until they are turned over to the landlord. Money from security deposits is not taxed as long as the money is refundable or meant to be returned to the renter.

Can a landlord deduct from the security deposit for unpaid rent?

Absolutely. Indiana's security deposit law makes provisions to allow landlords to recover unpaid payments for a rental property from the security deposit, in addition to damages that go beyond normal wear and tear.

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David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!