Tennessee Security Deposit Laws in 2024

Tennessee Security Deposit Law Overview

Security deposits are funds paid by a tenant at the start of a lease to provide financial protection for the landlord if the tenant violates the terms of the lease agreement. However, security deposit laws also exist to protect tenants from abusive security deposit policies and unreasonable deduction claims. 

Tennessee security deposit law underwent major changes in 2022 to strengthen tenant rights and add new responsibilities for landlords. Key amendments included capping security deposit amounts, requiring deposit returns within 10 days, and defining normal wear and tear more precisely.

Under Tennessee law, both landlords and tenants have important rights and obligations regarding security deposits:

  • Landlords can legally collect security deposits up to 2 months' rent and make deductions for unpaid rent, physical damages beyond wear and tear, and breaches of the lease.
  • Tenants have the right to a full refund of their deposit within 10 days of lease termination if they fulfill all lease terms and leave the property in good condition. Tenants must provide a forwarding address.
  • Landlords must conduct a detailed move-out inspection with the tenant present and provide tenants an itemized deduction list for any amounts withheld.
  • Tenants can recover up to 2x the deposit amount in damages if a landlord violates the statutory requirements.

By understanding the security deposit laws and processes, both parties can avoid deposit disputes and ensure a smooth leasing experience. Tennessee law strongly favors using deposits only for their intended purpose.

Maximum Charges Allowed

In Tennessee, landlords are allowed to charge a security deposit equivalent to one month's rent. They cannot require a deposit that exceeds this amount, even if the tenant agrees. 

Landlords are also prohibited from charging additional nonrefundable fees on top of the security deposit, with the exception of a pet deposit if the tenant has a pet. The pet deposit can be no more than 50% of one month's rent. 

Therefore, the maximum total a Tennessee landlord can charge for deposits is:

  • 1 month's rent for the general security deposit
  • 50% of 1 month's rent for a pet deposit 

This means the absolute maximum a landlord can collect in deposits in Tennessee is 1.5x the monthly rent amount. They cannot require first and last month's rent upfront in addition to the deposits.

Charging more than these legal limits or additional nonrefundable fees beyond a pet deposit is unlawful and can result in penalties against the landlord.

Deposit Holdings

In Tennessee, landlords are required to hold security deposits in a separate bank account used only for that purpose. The deposits cannot be commingled with the landlord's personal funds or other accounts. 

Tennessee law states that the landlord shall accrue interest on all security deposits. The required interest rate is determined based on when the lease was signed:

  • For leases signed between July 1, 2003 and June 30, 2007, the interest rate is 4% per annum. 
  • For leases signed between July 1, 2007 and June 30, 2012, the interest rate is 3% per annum.
  • For leases signed after July 1, 2012, the interest rate is 1.5% per annum.

The accrued interest must be paid to the tenant along with the security deposit at the end of the lease term, unless there are damages or unpaid rent that allow for lawful deductions.

Tenants have the right to request an annual interest payment if the accrued interest exceeds $50. Landlords must comply with this request within 30 days.

Allowable Deductions 

Tennessee law allows landlords to deduct funds from a tenant's security deposit to cover damages caused beyond normal wear and tear, unpaid rent, and any cleaning needed to restore the unit to its condition at move-in.

Landlords cannot deduct for normal wear and tear, which includes minor issues like faded paint, minor carpet staining, or light scuff marks on the floor. Normal wear and tear is the expected decline from standard use, time and the elements.

Damage deductions cover repairs needed due to the tenant's actions that go beyond normal wear. This includes things like:

  • Holes put in the walls that need patched and repainted
  • Stained or damaged carpeting that needs replaced 
  • Missing fixtures like lights or cabinet knobs
  • Broken appliances or damaged countertops
  • Cracked tiles or torn screens
  • Smoking residue or persistent odors that require cleaning or replacement

Landlords can deduct reasonable costs to clean and restore the unit if the tenant leaves it substantially dirtier than move-in condition. This includes cleaning fees for issues like:

  • Accumulated dirt and grime buildup  
  • Trash removal if not disposed of properly
  • Pet urine, feces or excessive hair left behind
  • Food stains or spills not cleaned 
  • Grease buildup on kitchen surfaces

To justify deductions, landlords should properly document the unit's move-in condition and then the damage or areas in need of cleaning at move-out. Photographic evidence is recommended.

Inspection Report

After a tenant moves out, landlords in Tennessee are required to inspect the property and make a detailed list of any damages beyond normal wear and tear. This inspection report should be completed within 4 days of the tenant vacating the unit. 

The landlord must provide the tenant with a copy of the inspection report along with the itemized damages and security deposit disposition within 30 days. This gives the tenant a chance to review the landlord's report and contest any unfair or inaccurate deductions.

If a tenant disagrees with the inspection report, they should communicate this to the landlord in writing within 7 days and provide their own documentation such as photos, videos or repair estimates to dispute the findings. The tenant can also request an additional inspection to have the unit reassessed. 

Landlords are obligated to consider the tenant's evidence and make adjustments to the security deposit deductions if warranted. However, the landlord has the final say in determining if any charges are valid.

It's important for tenants to thoroughly document the condition of the rental at move-in and move-out with dated photos/videos. These can provide proof if the landlord attempts to charge for pre-existing damage or normal wear and tear. Having their own documentation makes it easier for a tenant to contest questionable deductions from their deposit.

Wear and Tear 

Normal wear and tear is expected deterioration that occurs naturally over time even with reasonable care and maintenance. Tennessee law distinguishes between damage a tenant is responsible for, versus normal wear and tear a landlord cannot deduct from the deposit.

Some examples of normal wear and tear in Tennessee include:

  • Faded paint or wallpaper
  • Minor scuff marks on walls or floors
  • Worn carpet 
  • Sticky doors or windows from weather changes
  • Cracks due to settling or expansion
  • Loose door handles or cabinet hardware

Damage that a landlord can deduct from the deposit includes:

  • Large stains or excessive dirt on carpets 
  • Ruined or burned carpets that require replacement 
  • Pet urine odors soaked into carpet
  • Holes in walls larger than a nail hole
  • Broken appliances or fixtures like doors or cabinets
  • Mold or mildew buildup requiring professional cleaning
  • Cuts, burns, or water damage on countertops 
  • Broken tiles or hardwood with gashes or pet scratches
  • Shattered windows or ripped screens
  • Missing or broken blinds and shades

The key differences between normal wear and tear vs. damage often relate to severity, cause, and cost to repair. Minor aesthetic issues like faded paint are expected. But large pet stains requiring new carpet or broken appliances requiring replacement constitute damage. As a general rule, if the issue requires extensive repairs and arose from abuse, pets, or negligence rather than everyday use, the landlord can claim damages.

Returning Deposits

Tennessee law specifies clear timelines for landlords to return security deposits after a tenant moves out. Landlords must return the full deposit, or any remaining balance after lawful deductions, within 30 days of the lease termination and delivery of possession. 

If a landlord fails to meet this deadline, they forfeit the right to make any deductions and must return the full deposit amount immediately. The landlord would then be liable for damages in a court action brought by the tenant.

Specifically, if the landlord does not provide an itemized list of deductions and return the deposit balance within 30 days, they lose the right to keep any portion of the deposit. Even if damages or unpaid rent exceeded the deposit amount, the landlord cannot legally deduct anything if they missed the deadline.  

Tennessee landlords face strict penalties for failing to return deposits on time. If the tenant sues for recovery, the court will award the full deposit amount plus other damages. By law, the landlord must pay the tenant's court costs and attorneys fees related to the action. The court may award the tenant additional punitive damages up to $200 if the improper deposit retention was determined to be willful and knowledgeable.

To avoid penalties, landlords should thoroughly inspect units, provide tenants an itemized deduction list, and return any deposit balance within 30 days after move out. Careful record keeping and compliance with all notice requirements is essential. If disputes arise over deposit withholdings, landlords should consult an attorney. Ignoring the statutory deadlines can lead to significant financial consequences.

Tax Filings 

Landlords in Tennessee are required to report security deposit funds when filing their taxes each year. The deposits must be reported as income during the year they were collected, even if they have not yet been returned to the tenant. 

When a security deposit is returned to the tenant, the landlord can deduct it as an expense. However, landlords cannot deduct security deposit money that was wrongfully withheld or used to cover normal wear and tear.

Tennessee law requires security deposits to be reported on a landlord's state and federal income tax returns. The deposits should be included along with any other rental income on Schedule E of IRS Form 1040.

On their Tennessee state tax return, landlords must report security deposit funds on Schedule RPD, which is for business rental property. The full amount collected during the tax year should be entered in the "rents received" section.

Proper documentation is essential for taxes related to security deposits:

  • Keep detailed records showing the amounts and dates of all security deposits collected.
  • When returning deposits, retain copies of inspection reports and receipts showing the refunds issued.
  • Log any deductions taken from deposits for damages or unpaid rent, with supporting invoices and bills.

Following Tennessee's tax rules for security deposits ensures landlords stay in compliance. Failing to report deposits correctly could lead to audits, tax penalties and loss of rental income deductions.

Additional Regulations 

In addition to statewide laws, some local jurisdictions in Tennessee may have additional rules and regulations regarding security deposits that landlords and tenants should be aware of. 

For example, some cities may cap security deposit amounts at lower maximums than the state law allows. Other areas may require enhanced disclosures or additional protections for tenants. Some landlord-tenant ordinances require deposits to be held with third parties or mandate specific accounting procedures.

It is important for both landlords and renters to check if the local city or county they reside in has any municipal code that modifies the statewide security deposit laws. Failing to follow local regulations could result in penalties or legal trouble even if the state statutes are being adhered to.  

Those renting or operating rental properties in Nashville, Memphis, Knoxville, Chattanooga, and other major Tennessee cities and counties should research if extra rental ordinances apply to deposits in their jurisdictions. Consulting with a local landlord-tenant lawyer is the best way to fully understand all the relevant laws at the city, county, and state levels that may impact security deposits.

Frequently Asked Questions

Can my landlord charge more than 1 month's rent for a security deposit?

No, Tennessee law caps security deposits at 1 month's rent for unfurnished units and 1.5 month's rent for furnished units. Landlords cannot require additional deposits or nonrefundable fees.

What if my landlord does not return my deposit within 30 days?

You should send a formal letter requesting the return of your deposit immediately. If the landlord still does not comply, you can file a lawsuit in small claims court for up to twice the amount wrongfully withheld.

My landlord says damage I didn't cause is coming out of my deposit. What can I do?

Politely dispute any unfair deductions in writing and provide evidence like photos and receipts. If the dispute is not resolved, you can sue in small claims court. Judges often side with tenants if deductions seem unreasonable.

How do I get my deposit back if my landlord refuses to do a walkthrough inspection?

Conduct your own inspection, take date-stamped photos and videos, and send them to the landlord as evidence of the condition you left the unit in. This protects you if the landlord tries to make false claims of damage later.

What is considered normal wear and tear that cannot be deducted from my deposit?

Normal wear like minor scuffs, nail holes, and faded paint are not deductible damage. However, large stains, broken fixtures, and ruined carpets can be deducted if caused by tenants or guests.

Can I use my security deposit as last month's rent?

No, Tennessee law prohibits tenants from applying the deposit to rent payments. The deposit is for reimbursement of damages only. Withholding rent based on the deposit could lead to eviction.

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