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Contents
This article provides general information and is not legal advice. For accuracy and specific guidance on landlord-tenant laws, consult an attorney before making any decisions or taking action.
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For landlords, security deposits act as their safety net in the event of a tenant’s failure to pay rent or violation of a lease agreement. There are several laws that govern the collection, use, and return of security deposits in Illinois. These laws are outlined in the Illinois Security Deposit Return Act and Security Deposit Interest Act.
This article covers everything landlords need to know about security deposits in Illinois, from the maximum security deposit limits, how deposits must be held, and how long landlords have to return security deposits in Illinois.
Additionally, we will address common questions about Illinois security deposit law at the end of this article.
Illinois has no legislation that caps how much a landlord can charge for security deposits. This means they can charge as much as they deem suitable; however, it is advisable for landlords to ensure their security deposits are fair and reasonable. Excessively high deposits may deter potential tenants, who are likely to seek more affordable options elsewhere.
Typically, Illinois landlords charge a security deposit equivalent to one or two months' rent. For mobile home park owners, the maximum charge is limited to one month's rent.
Illinois law allows landlords to request additional pet deposits from renters with pets as long as it’s explicitly stated in the lease agreement. However, tenants with disabilities who have service animals for emotional support are exempt from pet deposits per the Federal Fair Housing Act.
Regardless, the renter is still liable for any damage to the property caused by their service animal. The landlord is required to provide the tenant with an itemized statement detailing the damages and associated repair costs in such cases.
Illinois allows landlords to request and collect a security deposit from tenants at the beginning of a lease.
As regards payment methods, landlords have the right to choose whichever way works for both parties. While it's certainly possible to manage security deposit collections manually, automating this process can save time and reduce errors.
If you want to increase the efficiency of your security deposit collection, consider using an electronic money transfer system like Landlord Studio.
Landlord Studio provides a comprehensive solution for managing security deposits, ensuring compliance and organization throughout the process. This property management software simplifies online deposit collection, keeps transaction records organized, and securely stores essential documents such as receipts and inspection reports.
Important Tip for Landlords: Before collecting security deposits from tenants, it's essential to conduct a move-in inspection of the rental property together with the tenant. This step allows both parties to assess and document the property's condition at the start of the lease, which can help prevent disputes over damages later on.
According to the Illinois Security Deposit Return Act, landlords are permitted to deduct funds from a security deposit only for two reasons:
It’s important for landlords to note that they cannot make deductions for any other reasons, regardless of what the lease may state.
For security deposit returns in Illinois, there are specific timelines and guidelines landlords are required to follow. These timeframes can vary depending on the location and circumstances surrounding the tenant's departure.
In Chicago, landlords are required to return a tenant's security deposit within 45 days after they move out. However, this timeline is shortened to 7 days if the tenant vacates due to a fire. It's important to note that these rules apply unless the property is an owner-occupied building with 6 units or fewer.
Across Illinois, different cities have their own regulations regarding security deposit returns:
For properties with 4 units or fewer, there are no specific regulations governing the return of security deposits. However, for buildings with 5 or more units, landlords must ensure that the security deposit is returned within 45 days after tenants vacate.
If a landlord decides to withhold any amount from the security deposit due to property damage, they are required to provide an itemized list of the alleged damages. This list must be sent to either the tenant’s last known address or a verified email address.
The landlord must deliver this itemized list within 30 days after the tenant vacates the unit or 30 days after the tenant's right to occupy the property ends—whichever is later.
Along with the itemized list, landlords must also provide evidence that repairs have been completed and that the costs claimed are accurate. Typically, this evidence comes in the form of paid receipts.
If the itemized list includes actual costs, these receipts should be provided at the same time as the list. However, if the list contains estimated costs, receipts must be submitted within 30 days from when the itemized list is issued.
Per the Illinois Security Deposit Interest Act, landlords are required to deposit security funds into an appropriate interest-bearing account. It’s also mandatory for the financial institution that would house the deposit to be federally insured and located within Illinois.
Landlords are prohibited from keeping security deposits mixed with their personal funds. This is to ensure they are protected from creditors, including those involved in foreclosure or bankruptcy proceedings.
Additionally, it’s important for landlords to note that tenants have the right to receive interest on their security deposits. Landlords are obligated to pay these interests to tenants annually—within 30 days following each 12-month rental period. Simply providing interest at the end of the lease term does not fulfill this requirement.
According to the IRS, security deposits are generally not considered taxable income. This is because landlords are obligated to return these deposits to tenants at the end of a lease in most cases.
However, these security deposits can become taxable when they are transferred to the landlord. This transfer occurs in three specific situations:
To this effect, landlords are required to report any of these scenarios as rental income in the year they occur to comply with the IRS’s regulations.
Simplify your security deposit management and tax filing process by using Landlord Studio. This property management software has tools that can help you effectively manage security deposits while ensuring adherence to tax laws.
Understanding Illinois security deposit laws is essential for landlords to avoid disputes and maintain compliance. Key takeaways include: charging reasonable deposit amounts, adhering to specific timelines for returns, holding deposits in proper accounts, and providing itemized lists for deductions. Following these guidelines ensures a transparent and efficient rental process.
To further streamline security deposit management and compliance, consider using tools like Landlord Studio.
In Illinois, there are no statewide limits on the amount a landlord can charge for a security deposit. However, it is advisable to check local ordinances, as some counties and municipalities may impose restrictions.
Although not mandated, it is generally recommended that landlords do not charge more than two months' rent for a security deposit to maintain fairness and avoid potential disputes.
While it is uncommon, there are instances where landlords and tenants may agree to use the security deposit to cover the last month's rent. This arrangement should be clearly documented to prevent misunderstandings.
Excessive wear and tear refers to damages caused by a tenant's negligence, carelessness, or misuse of the property. Such damages typically diminish the property's value or functionality and may justify deductions from the security deposit.
Landlords who do not return a tenant's security deposit within the required timeframe of 30 to 45 days may face significant penalties. These can include losing the right to deduct any amounts from the deposit, as well as being liable for double the amount wrongfully withheld, along with legal fees and court costs.
