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It's important to understand the security deposit law for Minnesota. Generally, MN Stat 386.78 regulates the return and collection of the security deposits, and the laws provide rules for landlords and property managers to follow to protect the parties.

Maximum Deposit

There's no limit on the amount a landlord can charge as the security deposit. Generally, they request one to two months' rent, but they can also add another month's rent as a pet deposit.

The Minnesota security deposit law indicates that a landlord can ask for more pet deposits as needed. However, those with service animals must get equal and full access to housing. Still, any service animal damage must be paid for by the tenant.

If the tenant gets a subsidy reducing their rent responsibility, they are allowed to have a spayed/neutered cat or dog or two birds within the rental property. The landlord should refund the pet/security deposit after covering damages the animal caused.

Minnesota law states that landlords can increase the security deposit amount anytime for month-to-month rental agreements because there's no final date for the tenancy to end. However, the tenant must receive written notice, which is usually the time frame for the rental period plus one more day.

However, rental agreements with a tenancy end date must have the same security deposit amount until the lease is up unless both parties agree to the change.

Withholding Rules

If a landlord has a tenant who wrongfully quits the lease agreement and abandons the property with unpaid rent issues or without notice, the landlord can retain the amount equal to that portion of the rent and any interest. However, the exception is if the landlord and tenant have a rental agreement (orally or in writing).

The tenant is liable for the following if they remain in violation after the written notice and eviction letter have been delivered:

  • Penalties equaling the amount of unpaid rent paid from the security deposit
  • Interest for the entire security deposit, plus the rent amount withheld by the tenant

Overall, the landlord should bring an action in the county where the rental property is located to recover all costs.

Required Disclosures

Before the landlord can collect the tenant's security deposit, they must give notice to the tenant if there's a health code violation or pending foreclosure. Landlords who don't report on pending foreclosures before collecting security deposits could incur a fine of $500 unless the title holder decides not to terminate that contract upon foreclosure.

Allowable Deductions

A landlord can use that security deposit to make deductions once the tenant vacates the property. It can cover unpaid bills, unpaid rent, and the cost of damage stemming from a tenant's negligence as the tenant. These do not include standard wear and tear.

Can Your Tenant Use the Security Deposit as Their Last Month's Rent?

Minnesota law states that the tenant's security deposit cannot be used to pay the last month's rent unless it is a month-to-month lease agreement and the tenant/landlord agree.

Normal Wear & Tear

Normal wear and tear is considered any deterioration that happens while regularly using the rental unit. No negligence, accident, carelessness, or abuse of the premises has happened by anyone. This includes minor issues, such as faded wall paint, worn carpets, light scuffs on the floors, damaged blinds, and more.

However, damage focuses on destruction of the rental unit that happens because of negligence or abuse by the tenant. The landlord cannot rent it out to another until those things are fixed. This includes holes in the walls, broken tiles, stained or ripped carpeting, missing fixtures, and broken windows.

Returning Deposit

Minnesota's security deposit law states that a landlord has 21 days to return the unused portion of the security deposit, and this includes interest. They must also provide an itemized list of the damages, which must be sent by certified mail to the tenant. However, if termination happens from property condemnation, there's a five-day limit.

If the landlord doesn't return the tenant's security deposit within 21 days or doesn't provide the deductions, the tenant can recover twice the amount and $500 extra for damages of bad faith.

Tax Filings

It depends on whether the security deposit was used or returned to determine if it's taxable.

Security deposits aren't automatically called income when collected. This only happens when the landlord collects it for damages and returns the rest. However, they are often considered write-offs.

Landlords may have to report security deposits as income, depending on how they're applied or why they're used. Here are a few simple rules:

  • The landlord includes the security deposit as income if both parties agree to use it or part of it for the final month's rent.
  • The landlord only counts part of the deposit as income if it was used to cover repairs and other expenses.
  • If the tenant breached the lease or didn't pay rent, the amount kept is declared as income for the year it was applied or forfeited.

Conclusion

There will always be a Minnesota security deposit law that landlords must follow, and they must be familiar with them to maintain a good relationship with the tenant.

Security deposits in Minnesota protect the landlord from undue stress and repair costs. As long as the amount doesn't exceed the Minnesota law limit, there should be no issues.

FAQs

How Much Can You Charge as a Security Deposit in Minnesota?

Landlords may charge whatever amount they want as a security/pet deposit, though service animals don't incur the pet fee.

Do You Have to Provide a Move-in Checklist?

No. You're not required to create move-in checklists, but you should ensure that everyone is on the same page when making deductions after the lease is terminated.

What Can Landlords Deduct from Security Deposits in Minnesota?

Minnesota landlords may legally deduct any unpaid rent, repairs for significant damage, and more. However, this doesn't include normal wear and tear.

What Happens If the Landlord Doesn't Return the Tenant's Security Deposit?

Landlords have a 21-day limit to return the tenant's security deposit and provide itemized deductions. If they don't, tenants can sue and get twice that withheld sum and $500 in damages for bad faith.

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Resources

  1. https://bk-lawgroup.com/blog/minnesota-security-deposit-laws-and-procedures/
  2. https://www.nolo.com/legal-encyclopedia/minnesota-security-deposits-36216.html
  3. https://lawrina.com/practice-areas/security-deposit/minnesota/
David Bitton

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!