Contents

All information surrounding the collection/return of a tenant's security deposit is regulated under the North Carolina General Statutes - Chapter 42. It's essential for North Carolina landlords to understand and comply with these laws surrounding the tenant's deposit to avoid any legal issues in the future.

On this page, you will be able to get more information surrounding North Carolina laws and the renter's security deposit guidelines in general.

Overview

  • Maximum Charge - Two weeks' rent for weekly tenancies, one-half months' rent for monthly tenancies, and two months' rent for longer tenancies
  • Return Deadline - Up to 30 days from the date the tenant left the property
  • Return Penalty - Willful/negligent damage fees plus attorney's fees
  • Allowed Deductions - Unpaid bills, rent, damages that exceed normal wear and tear, damages for breaching the lease, re-renting and storing abandoned tenant's property fees, court costs, eviction fees, and more.

Maximum Deposit

Security deposit maximums are slightly complicated in North Carolina, as they will change depending on the length of the rental agreement.

  • Weekly Leases - Two weeks of rent.
  • Monthly Leases - One and a half months of rent.
  • Leases Longer Than One Month - Two months of rent.

These limits don't apply to landlords who are leasing single rooms in North Carolina.

Pet Deposits in North Carolina

North Carolina landlords have the legal right to charge pet deposits, as long as they're reasonable. However, tenants with disabilities that have a service animal with them will not have to pay these fees. On the other hand, if the service animal causes any damage to the rental property, the tenant will have to pay for these damages.

Allowable Deductions

Landlords can use a North Carolina security deposit when the lease ends or gets terminated for any valid reason. In most cases, landlords in North Carolina can use the security deposit to cover the following:

  • Unpaid rent
  • Unpaid bills
  • Unpaid utilities
  • Damages due to the nonfulfillment of the rental agreement
  • Damage to the premises that exceeds normal wear and tear
  • Re-renting costs and licensed real estate broker fees
  • Removing or storing costs for abandoned property
  • Court costs
  • Eviction fees

Difference Between "Damage" and "Normal Wear and Tear" in North Carolina

North Carolina security deposit laws emphasize understanding the difference between regular and excessive wear and tear. Let's break down both terms below:

  • "Damage": It represents any kind of deterioration that happens due to the tenant's negligence or abuse. It includes broken windows, tiles, or fixtures, thoroughly stained fixtures, and more.
  • Normal Wear and Tear: It represents regular deterioration that happens to the property after regular usage. In this case, landlords cannot use the tenant's deposit to cover these damages. They include loose handles, fading paint, stained fixtures, lightly scratched glass, and mold.

Holding

According to North Carolina laws, landlords have two options surrounding the holding of the security deposit:

Trust Account

Landlords in North Carolina can store the security deposit in a trust account. However, this account must be established in an approved state or federally insured institution. On the other hand, if the landlord provides the tenant with a bond for the security deposit, they may hold it in a trust account outside the state.

Surety Bond

Landlords can post a bond, as long as it's from a licensed insurance company from North Carolina. In all cases, the bond must be in the amount of the original security deposit held by the landlord. If the insurance company isn't licensed or is outside the state, then this option isn't valid.

Regardless of the option you decide to choose, you have 30 days to notify the tenant of the name and address of the institution where you're holding the security deposits. Moreover, if you decided to post a bond, you must also include the name of the insurance company.

Tenant's Security Deposit Receipt Requirements

Security deposit laws in North Carolina don't require landlords to provide the tenant with a receipt for the security deposit.

Returning

In any case, landlords have 30 days from the end date of the lease to return the tenant's security deposit. If the landlord wants to deduct damages from the security deposit, they must include a written, itemized list of these deductions and send it via first-class mail or in person.

Keep in mind that if you cannot make this itemized list, you will not be able to withhold the tenant's security deposit in any way.

The only exception to this rule applies if the landlord cannot determine the cost of repairs reasonably. Here, they must send an interim list of deductions within those 30 days and then provide a final accounting list for the deposit within 60 days.

Consequences if the Landlord Fails to Return the Security Deposit on Time

Landlords who, for any reason, fail to return the security deposit within the specified time frame risk getting sued by their tenant. Moreover, they will forfeit all rights to holding any amount of the security deposit, and they could be required to pay for the deposit, any damages, and attorney fees.

If the tenant's new address is unknown to the landlord, they must hold the security deposit for at least six months. After that period, the deposit is considered to be forfeited by the tenant.

Tax Filing

You may have to report your security deposit as taxable income, depending on whether you're going to keep it or not. Keep reading to understand the rules surrounding tax filings in North Carolina.

Regardless of the amount of the security deposits, they're not considered income unless the landlord has no obligation to return them. Moreover, if you must report the security deposits as income, then you must do so in the year they were forfeited by the tenant.

A North Carolina landlord must follow these IRS guidelines to ensure they comply with the law:

  • According to North Carolina law, any deposit used to cover a breach of lease or unpaid bills must get reported as income the year it was forfeited.
  • Landlords must report the security deposit as income if they included repair costs as expenses.
  • If a North Carolina landlord and tenant agreed to it, they can use any security deposit amount to cover last month's rent. However, the landlord will have to report that received amount as income.

Miscellaneous

Interests

Landlords in North Carolina don't have to pay any interest on the security deposit.

New Landlords

There are certain rules to follow if the property is transferred or sold to another property manager during the lease term.

The previous landlords must comply with one of the following security deposit law guidelines to forfeit any liability:

  • They must transfer any balance of the remaining deposit, after making the necessary deductions, to the new landlord. Moreover, they must notify the tenant about this change, including the new landlord's name and address. In essence, the new landlord will receive the previous one's responsibilities surrounding the security deposit.
  • The previous landlord should return the remaining portion of the security deposit to the tenant after making the deductions.

Bottom Line

Security deposits are among the most important factors in any rental period. If you want to avoid any problems with your tenant or the law in general, make sure you follow all of the guidelines stated on this page.

Some people decide to look for a free rental pricing analysis for help. While a free rental analysis could help you, we still suggest you do research on your own to understand how much is reasonable to charge for your security deposit.

FAQs

What Are the Standard Security Deposit Limits in North Carolina?

  • Weekly Leases: Two weeks of rent
  • Monthly Leases: One and a half months of rent
  • Leases Longer Than Monthly Ones: Two months of rent

What Deductions Can You Make from a Security Deposit in North Carolina?

  • Any unpaid fees
  • Unpaid water or sewer services
  • Damages to the unit that resulted from the tenant's negligence or abuse
  • Late payments
  • Eviction fees

Can Landlords Use the Security Deposit to Cover Last Month's Rent in North Carolina?

As long as the landlord and tenant agree to use the deposit to cover last month's rent, they can do it without any problems. Although this isn't common, it's valid to ensure that the landlord gets any remaining payments.

Can Landlords in North Carolina Charge Cleaning Fees?

Yes. Landlords can charge cleaning fees as long as they include them in the original rental agreement. Otherwise, they will not be able to charge these fees in the future.

Free Downloads

Resources

  1. North Carolina Security Deposit Laws (2022): Deadlines & Deductions (ipropertymanagement.com)
  2. North Carolina General Statutes § 42-50 (2021) - Deposits from the tenant. :: 2021 North Carolina General Statutes :: US Codes and Statutes :: US Law :: Justia
  3. North Carolina Security Deposit Laws - FindLaw
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!