Indiana Security Deposit Laws in 2024

Security deposits are a standard requirement for most rental housing agreements in Indiana. Landlords collect deposits from tenants at the beginning of a lease to provide financial protection in case the tenant causes damage or fails to pay rent. Indiana law regulates security deposits to ensure fair handling practices. 

This guide provides an overview of Indiana security deposit statutes, rules, and best practices. It covers key provisions tenants and landlords should understand, including deposit limits, handling requirements, allowed deductions, dispute resolution, and more. Whether you are renting or owning investment property in Indiana, this guide will help you navigate security deposit laws and processes.

Security deposits impact two main groups - landlords leasing residential or commercial property, and tenants renting homes, apartments, offices, retail space, or other property. Each has an interest in ensuring deposits are handled properly. This guide provides useful information for both landlords and tenants to achieve fair, lawful, and smooth security deposit transactions in Indiana.

Maximum Security Deposit Amount

Indiana law limits the maximum security deposit a landlord can charge to be equal to one month's rent if the tenant rents month-to-month. For leases longer than a month, the maximum security deposit is equal to 1.5 times the monthly rent.

For example, if the monthly rent is $1,000, the maximum security deposit would be $1,000 for a month-to-month rental or $1,500 for a yearly lease.

Landlords can charge additional deposits for pets, but they are limited to 25% of one month's rent. So with a $1,000 monthly rent, a landlord could charge up to $250 as a pet deposit, in addition to the maximum security deposit.

Recent changes to Indiana law now prohibit landlords from charging move-in fees on top of security deposits. As of July 2022, move-in fees are considered part of the overall security deposit amount limited by law.

Landlords should be aware of these limits when setting deposits and ensure the total amount complies with Indiana statutes. Collecting too much could open them up to penalties and legal action from tenants.

Collecting the Security Deposit

In Indiana, landlords can require a security deposit equivalent to no more than one month's rent. They may also charge additional deposits for pets, but the total for the security deposit and any other deposits cannot exceed 1.5x the monthly rent. 

Landlords should provide tenants with a receipt for the security deposit that includes the rental address, amount paid, date, and signatures of both parties. This helps avoid potential disputes. Cash is acceptable for security deposits, but paying by check or other traceable method is recommended for documentation.

Tenants cannot be required to provide postdated checks or authorize automatic rent payments as a condition of renting. Security deposits also cannot be nonrefundable, regardless of what the lease states. Tenants have the right to inspect the rental unit at move-in and document any existing damages before paying a deposit.

Returning the Security Deposit 

Landlords in Indiana must return a tenant's security deposit within 45 days after the termination of the rental agreement or lease. The 45 day timeline begins once the tenant has fully vacated the unit and returned the keys to the landlord.

Within this 45 day period, the landlord must send an itemized list of any damages or deductions along with the balance of the deposit owed to the tenant. If no deductions are taken, the full security deposit must be returned. 

To properly account for deductions, the landlord should conduct a move-out inspection once the tenant has fully vacated. It is recommended that landlords take date-stamped photos and video documenting the condition of the unit at move-out. Tenants in Indiana have the right to be present for the move-out inspection, so landlords should provide advance notice of the inspection date and time.

If any deductions are taken from the deposit for cleaning, repairs, or damages, the landlord must send the tenant an itemized list detailing the amounts and reasons for each deduction. Things like normal wear and tear cannot be deducted. If the deductions exceed the amount of the deposit, the landlord can request additional payment from the tenant for the balance. 

Landlords should maintain thorough documentation justifying any deductions, as tenants can dispute improper withholdings. If a dispute arises, the landlord must provide evidence like the move-in and move-out inspection reports.

Allowed Deductions 

Indiana law allows landlords to deduct from the security deposit to repair damages to the property beyond normal wear and tear. However, landlords cannot deduct for routine cleaning, maintenance, or minor damage that occurs through everyday use.

Landlords must notify tenants in writing of any deductions they intend to take from the security deposit. This notice must include an itemized list of damages along with associated repair costs. Tenants should receive this notice when the landlord returns the balance of the deposit within the 45 day timeline.

If tenants dispute improper deductions, they can send a letter contesting the charges within 10 days of receiving the landlord's notice. The letter should detail which deductions are unwarranted and request the disputed amount be returned. Supporting evidence like photos or videos of the rental's move-in condition can help. 

Some improper deductions that tenants often dispute include:

  • Charges for painting or cleaning that fall under normal maintenance
  • Pre-existing damages that were present before the tenant moved in
  • Normal wear and tear from everyday use of appliances, floors, walls etc.
  • Damage that occurred after the tenant moved out

Tenants have additional recourse through small claims court if landlords refuse to return wrongfully withheld portions of the security deposit. Consulting a local tenant rights group or attorney can help navigate disputes. Maintaining thorough move-in and move-out documentation is key to challenging unauthorized deductions.

Transferring the Security Deposit

When a rental property is sold in Indiana, the security deposit transfers along with the property to the new owner. The previous landlord must notify the tenant in writing and provide the name and address of the new landlord or owner now holding the security deposit.

Indiana law requires written notice to the tenant within 45 days of the transfer, either by certified mail or personal delivery. This notice should include:

  • The address of the rental property
  • The amount of the transferred security deposit 
  • The name and address of the new owner or landlord now holding the deposit

The new owner must keep the security deposit in a separate escrow account and take over responsibility for returning the deposit within 45 days after the tenant moves out, minus any valid deductions. The tenant's rights remain the same under the new owner as with the previous landlord.

If the previous landlord fails to properly notify the tenant and transfer the deposit to the new owner, they can be liable for the full security deposit amount plus attorney fees. Tenants should be proactive in contacting the new owner to verify the deposit transfer and make sure proper notice was provided.

Tenants do not need to pay a new security deposit when ownership changes. The deposit transfers to the new landlord, who takes over full responsibility. If tenants have concerns, they can contact legal aid or tenant advocacy groups for guidance on their rights during transitions.

Tips for Landlords

As a landlord in Indiana, following the state's security deposit laws and best practices will help avoid disputes and ensure a smooth process when tenants move out. Here are some tips:

Follow Indiana Laws

  • Know the legal limits for security deposits - no more than 1 month's rent for unfurnished units, and no more than 2 months' rent for furnished units. Charging too much could lead to penalties.
  • Return deposits within 45 days of move-out along with an itemized deduction list. Failure to do so could mean owing the tenant damages.
  • Only deduct for legitimate damages, not normal wear and tear. Improper deductions could lead to lawsuits.
  • Transfer security deposits when selling a property and notify the tenant in writing. Not doing so violates Indiana law.

Communicate with Tenants 

  • Provide details on deposit handling in the lease agreement. Outline the move-out process.
  • Do a walkthrough inspection with tenants at move-in and move-out. Take photos/video to document condition.
  • Notify tenants in advance if you intend to make deductions so they can address any concerns. 
  • Respond promptly if tenants dispute deductions and try to reach an agreement. Taking it to court should be a last resort.

Follow Best Practices

  • Hold deposits in a separate escrow account as required by Indiana law. Don't mix with personal funds.
  • Avoid normal wear and tear deductions like carpet cleaning. Focus on damage beyond expected use.
  • Return deposits promptly after move-out, even if no deductions. Don't hold longer than 45 days.
  • Be reasonable on repairs. Don't overcharge for minor holes or scuffs tenants could easily fix.
  • Provide receipts and copies of paid invoices if deducting for repairs or replacements. Document everything.

Following Indiana's security deposit rules and communicating clearly with tenants can help make the process smooth for both parties when tenancies end. Taking a reasonable approach helps maintain positive relationships even after move-out.

Tips for Tenants

As a tenant, you can take steps during your lease term to help ensure you get your full security deposit back. Here are some best practices:

Maintain the Rental Condition

Keep the rental unit clean, undamaged, and in the same condition as when you moved in. Normal wear and tear is expected, but avoid damaging the property beyond that. Follow all terms of your lease agreement regarding property maintenance and repairs.  

Document Damages Thoroughly

When you first move in, take photos and video of any existing damages or issues. Save copies to demonstrate the pre-existing condition. Also document damages immediately if they occur during your tenancy. Having a record protects you if the landlord tries to blame you for the damages and deduct from your deposit.

Request Inspections

You can ask the landlord to do a walkthrough inspection with you present at move-out. This allows you to point out repairs or fixes you made. If the landlord identifies damages, ask for documentation on what they plan to deduct and why. 

Clean Thoroughly

Clean the rental fully before moving out. This includes all rooms, appliances, fixtures, windows, floors, walls, etc. Refer to your lease checklist for cleaning requirements. A clean unit helps avoid deposit deductions for cleaning fees.

Return Keys and Provide New Address 

Return all keys and access materials to the landlord when you move out. Also provide your new address in writing so they know where to send your deposit refund. Some states require landlords to mail the refund to your last known address within a certain timeframe.

Follow Up on Deposit Return

Be proactive following up if you do not receive your deposit refund by the deadline set in Indiana law. Send a formal letter requesting return of your full deposit immediately. Be prepared to take further legal action if needed.

Disputes and Recourse

If a landlord improperly withholds a security deposit in Indiana, tenants have legal options to recover their money. The first step should be trying to resolve the issue directly with the landlord. However, if that fails, tenants can take further action.

Small Claims Court

Indiana tenants can file a small claims court case if the disputed deposit amount is $6,000 or less. This allows them to argue their case before a judge without needing to hire a lawyer. Tenants will need to provide evidence such as the lease, move-in and move-out condition reports, and communications with the landlord. If the judge agrees the deposit was wrongfully withheld, they can order the landlord to repay it.  

Low-income tenants may qualify for free legal assistance from organizations like Indiana Legal Services. They can provide advice on security deposit disputes and help craft demand letters to landlords. In certain cases, they may take on representation in small claims court if negotiations fail.  

Statute of Limitations 

Tenants have a limited window to take legal action to recover a security deposit in Indiana. The statute of limitations is two years from the end of the lease. This means claims must be filed within two years, or tenants lose the right to sue. It's important to act promptly in disputing improper deposit deductions.

Recent and Upcoming Changes

Indiana's security deposit laws have seen some notable changes in recent years, with additional amendments proposed for the future.

New 2022 Laws

  • In 2022, Indiana passed a new law requiring landlords to provide tenants with itemized statements of damages and refunds within 45 days of move-out. This provides more transparency for tenants.
  • Another 2022 amendment prohibits landlords from charging application fees when screening potential tenants, which helps reduce barriers to housing. 
  • Landlords in Indiana are now required to notify tenants in writing if ownership of the rental property is being transferred to a new owner. This ensures renters know who will be handling their security deposit going forward.

Proposed Amendments 

  • There is currently a bill proposed in the Indiana legislature that would cap late fees for overdue rent at $50 per late payment. This aims to protect renters from excessive penalties.
  • Some tenant advocacy groups are pushing for a law requiring interest to be paid on security deposits held over one year. This would discourage landlords from improperly retaining deposits long-term.

Areas to Watch

  • Restrictions on what fees landlords can charge in addition to rent and security deposits may come under review. Pet fees, maintenance fees, and more could face tighter regulations.
  • The 45-day window for returning deposits could potentially be shortened by future amendments to Indiana law. Some states only allow 30 days currently.
  • More requirements for documentation and itemized statements may be added to bolster tenant rights and transparency in the security deposit return process.

So both landlords and renters should stay up to date on changes to Indiana security deposit statutes, as key provisions may see revisions in coming years.

Frequently Asked Questions

What is the deposit law in Indiana?

In Indiana, landlords can request a security deposit up to the amount of one month's rent. Upon the tenant moving out, the landlord must return the deposit or provide an itemized list of deductions within 45 days. The security deposit can be used for unpaid rent, damages beyond normal wear and tear, and other breaches of the lease agreement.

What is the 45-day letter rule in Indiana?

The 45-day letter rule in Indiana requires landlords to either return the security deposit or send a written itemized statement of any deductions taken from the deposit within 45 days after a tenant vacates the property. This statement must detail the nature of damages and the actual or estimated cost of repairs.

What happens if a landlord doesn’t return the deposit in Indiana?

If a landlord in Indiana fails to return the security deposit or provide an itemized statement within the 45-day window, the tenant may sue for the return of the deposit. If a court finds the landlord acted in bad faith, it can award the tenant up to twice the amount of the security deposit as damages, in addition to the actual deposit amount.

What is considered wear and tear in Indiana?

In Indiana, normal wear and tear refers to the expected deterioration of the property due to everyday, reasonable use. This includes minor issues such as small scuffs on walls, natural fading of paint and carpet, and wear on flooring. It does not include significant damage like large holes in walls, broken windows, or stains and burns on carpets.

Featured Tools
Finding and Selecting the Best Tenant
For a $2,000 monthly rental: 1. You lose $1,000 if you have your rental on the market for 15 additional days. 2. You lose $1,000+ for evictions. Learn how to quickly find and select a qualified tenant while following the law.
More Tools