What can landlords deduct from security deposits?

Security deposits give landlords a financial safety net when tenants move out and leave behind damage or other unpaid costs. Most renters expect to get their full deposit back because they don’t plan on breaking anything or skipping rent payments. Of course, accidents happen and situations change.

Even when both sides have good intentions, mishandling security deposits creates some of the most common and expensive landlord-tenant disputes.

What Michigan law allows you to deduct

Michigan law permits landlords to withhold part or all of a security deposit for specific, documented reasons. You can deduct:

• Unpaid rent
• Unpaid utility bills
• Cleaning costs if the unit is left in an unreasonably poor condition
• Costs to replace lost keys or repair locks
• Damage that is not outside the usual wear and tear

If your tenant breaks a window, punches holes in walls or stains the carpet with pet damage, you can use the deposit to cover repairs.

However, you cannot charge for things like minor wall scuffs, faded paint or worn carpet that naturally occur over time. Courts treat those as routine costs of owning rental property.

Common mistakes that spark tenant disputes

Even landlords with legitimate deduction claims lose tenant disputes because of avoidable procedural errors. Watch out for these:

• Missing Michigan’s 30-day deadline to return the deposit or send an itemized deduction list
• Sending a vague statement instead of a clear written breakdown of each specific deduction
• Lacking documented move-in and move-out inspections to back up your damage claims
• Deducting for normal wear and tear rather than actual tenant-caused damage
• Failing to collect a written forwarding address before the tenant leaves

Each of these errors gives tenants legal grounds to challenge your deductions, even when your underlying claims are completely valid.

How to handle deductions the right way

Start by taking detailed photos and notes during inspections, both before moving in and moving out. Keep every receipt for repairs, cleaning or unpaid utilities.

More importantly, within 30 days of the tenant moving out, send an itemized list of deductions along with any remaining deposit to the forwarding address they provided. Additionally, send everything via certified mail so you have proof of delivery.

Protecting your investment

A security deposit serves a real purpose in your rental business. It covers legitimate costs when tenants leave you with damage or unpaid bills. You shouldn’t feel guilty about using it when circumstances warrant deductions.

At the same time, you need to follow the law carefully to avoid disputes. If you’re unsure whether a situation justifies a deduction or how to handle a complicated case, talking with a real estate lawyer can save you from expensive mistakes down the road.