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The content and templates provided by Landlord Studio are for general informational purposes only and do not constitute legal or professional advice. Laws vary by location and may change over time. For legal guidance, please consult a qualified attorney. Landlord Studio assumes no liability for any actions taken based on this information or the use of these templates.
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Security deposits are essential for protecting your rental property, but in California, collecting, storing, and returning them must be done in strict compliance with state laws.
As of July 1, 2024, California has introduced new updates to its security deposit laws through Assembly Bill 12, limiting the amount landlords can charge and clarifying return deadlines. Failure to comply could result in lawsuits or penalties of up to three times the deposit amount.
In this guide, we break down the latest rules and best practices for handling a security deposit in California, along with free downloadable templates to help you stay compliant.
Read more: The Complete State-By-State Guide To Security Deposit Laws
Download Includes: Free California Lease Agreement, Residential Rental Application, Required Notices, and 23+ more essential landlord templates, checklists and forms.
There have been some major changes to California security deposit law due to Assembly Bill 12, enacted on October 11, 2023.
Per the amendment, effective July 1, 2024, landlords cannot charge more than one month's rent as a security deposit. This limit applies to both furnished and unfurnished units. You can also collect the first months rent at the same time as the security deposit.
Important Exception: If you qualify as a small landlord—owning no more than two properties and a total of four rental units—you may still charge up to two months’ rent as a deposit.
This exception does NOT apply to tenants who are active-duty service members. They are protected under the California Civil Code Section 1950.5 and the cap remains at one month’s rent, no matter the landlord’s size.
While landlords in California may ask for pet deposits from tenants who have pets any deposit collected is subject to the same cumulative limit as other security deposits. This means that the pet deposit plus the security deposit cannot equal more than 1 month’s rent.
Security Deposit + Pet Deposit = Max 1 Month’s Rent (unless exempt)
You cannot charge extra for service animals. Tenants may still be held responsible for damages caused by those animals, however.
Under California security deposit law, landlords are permitted to collect a security deposit at the beginning of a tenancy. However, if you choose to do so you should follow best practice. This means:
To simplify the collection and documentation process, we recommend using property management software like Landlord Studio.
Landlord Studio software allows online deposit collection, maintains transaction records, and stores essential documents such as receipts and inspection reports. Its features are designed to help improve organization and compliance with security deposit laws in California.
Read more: Steps to Collecting the Security Deposit and First Month’s Rent.
Under California security deposit law, there are specific situations or expenses landlords can use a tenant's deposit to cover. Some of these deductions may include:
However, landlords may not use security deposit California for pre-existing damages, unnecessary expenses, or normal wear and tear.
Read more: What Can Landlords Deduct From The Security Deposit?
A landlord has 21 days after a tenant moves out to return a security deposit in California (Civ. Code §1950.5).
If any deductions are made during the rental period, the landlord will return the remaining balance of the security deposit along with a security deposit return letter. This statement must clearly specify the items deducted and the reasons for each deduction.
For deductions exceeding $125.00, landlords must provide copies of relevant invoices or security deposit receipts along with the itemized statement. If the work was performed by the landlord or their staff, they are obligated to include a description of the work done, the time it took, and the hourly rate charged. It is also important that these rates are deemed reasonable.
Failure to return the deposit on time can lead to:
Download Includes: Free California Lease Agreement, Residential Rental Application, Required Notices, and 23+ more essential landlord templates, checklists and forms.
Under California security deposit law, landlords are not required to keep security deposits in a separate account, but they must handle them responsibly. It's advisable to keep these funds separately to avoid mixing them in with personal finances, ensuring that the security deposit is readily available when the tenancy ends.
Proper documentation and accounting practices can help landlords track the security deposit and any deductions, providing transparency and avoiding potential legal issues.
Landlords are not required by California law to pay interest on security deposits. However, a few Californian cities require interest rate payments, such as Los Angeles, Berkeley, Capitola, Santa Cruz County, West Hollywood, and San Francisco.
In California, security deposits collected by landlords are not considered taxable income until they are no longer refundable. The IRS states that these deposits only become taxable when the landlord is free from the obligation to return them, which means tax implications arise based on whether the landlord retains the deposit.
Therefore, it's crucial for landlords to accurately track and report this income. Using software like Landlord Studio can simplify the process of filing and reporting security deposits for tax purposes.
Additional read: What Landlords Need To Know About Security Deposit Accounting
California security deposit laws can change at times. So, it's important you check for updates that might have occurred before collecting security deposits. The recent changes, particularly Assembly Bill 12, significantly impact the maximum allowable security deposits and provide specific guidelines on deductions and return timelines.
It's essential for landlords to follow these regulations to prevent disputes, foster positive tenant relationships, and avoid potential legal issues. Using useful tools like property management software can further streamline the process, ensuring proper documentation and transparency throughout the tenancy.
Create your free Landlord Studio account to day to collect rent online and streamline security deposit collection and management.
Yes, security deposits in California are refundable at the end of the lease. Therefore, landlords are prohibited from charging non-refundable fees related to these deposits.
Under California security deposit laws, a security deposit return must be done by the landlord within 21 days after the tenant moves out. Failure to do so can result in litigation problems.
After the 21-day deadline for security deposit return in California ends, tenants may file a lawsuit in Small Claims Court to recover it. If the court rules in favor of the tenant, the landlord may face penalties, including paying up to three times the deposit amount.
There are no legal requirements for landlords to store security deposits in a specific manner or separate accounts in California. However, it is best practice to avoid commingling security deposits with other funds. And deposits are still expected to be securely held.
Landlords can either return the deposit to the tenant or transfer it to the new owner, informing the tenant of any deductions made.
There’s no legal requirement to separate them, but it's best practice to avoid commingling funds.
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Last updated: July 2025
