Massachusetts Security Deposit Law: A Landlord Checklist

Massachusetts security deposit law is strict, and most of it is really a recordkeeping rule. The governing statute, M.G.L. c. 186, § 15B, tells a landlord exactly what can be collected, which receipts must be handed over and when, where the money must sit, how interest is paid, and how fast it must come back. Some missed steps let the tenant recover three times the deposit (or the balance owed) plus court costs and attorney’s fees. Below, each requirement in tenancy order, then a move-in, monthly, and move-out bookkeeping checklist with a sample deposit ledger.

This is general information from the statute and state guidance, not legal advice. The rules have exceptions and were amended in 2025, so talk with a Massachusetts landlord-tenant attorney about your specific situation.

What a landlord may collect at move-in

At or before the start of a tenancy, the statute caps what a landlord (or, since an amendment effective August 1, 2025, the landlord’s agent) may require a tenant to pay. The full list is:

The statute bars requiring any amount beyond that list at or before move-in, so a separate pet deposit or cleaning fee generally does not fit. Ask an attorney before adding any fee. After the tenancy starts, the landlord also cannot demand rent in advance beyond the current month or a deposit larger than the statute allows.

Two points from the Executive Office of Housing and Livable Communities (EOHLC):

• The security deposit and last month’s rent are separate prepayments. The deposit cannot be used as last month’s rent unless landlord and tenant both agree.
• If you later raise the rent, EOHLC says you can increase the last month’s rent you hold to match the new rent.

The statute does not apply to vacation or recreational rentals of 100 days or less.

Receipts and the statement of condition

Massachusetts security deposit law requires several documents at the start, each with its own deadline.

1. Last month’s rent receipt (at the time of payment). It must show the amount, the date received, that it is intended as last month’s rent, who received it (and the landlord’s name if an agent took it), a description of the unit, a statement that the tenant is entitled to interest at 5 percent per year or the lesser amount the bank pays, and a statement that the tenant should give a forwarding address at move-out.

2. Security deposit receipt (at the time of payment). It must show the amount, who received it (and the landlord’s name if an agent took it), the date, and a description of the unit. The person who received the money signs it.

3. Bank receipt (within 30 days of receiving the deposit). It must show the name and location of the bank, the amount, and the account number. Missing this one entitles the tenant to the immediate return of the deposit.

Statement of condition (on receipt of the deposit, or within 10 days after the tenancy starts, whichever is later). A separate, signed statement of the unit’s present condition listing all existing damage, including certain sanitary or building code violations. The statute prescribes a notice that must appear at the top of the first page in 12-point bold type, telling the tenant to review, sign, and return it within 15 days after receiving it or 15 days after moving in, whichever is later. If the tenant returns their own list of damage, the landlord has 15 days to return a copy signed in agreement or with a clear statement of disagreement attached.

The statement matters later: you generally cannot deduct for damage that was already listed on it (or on a tenant’s damage list that you signed) unless you repaired that damage and can prove the new damage is unrelated and caused by the tenant.

Where a Massachusetts security deposit must be held

The deposit remains the tenant’s property. The statute says it must be:

• held in a separate, interest-bearing account,
• at a bank located in Massachusetts,
• on terms that put it beyond the claims of the landlord’s creditors (including a foreclosing lender or bankruptcy trustee) and allow it to transfer to a later owner,
• and not commingled with the landlord’s own assets.

Your operating account does not qualify. For bookkeeping, that means a dedicated deposit account, a liability on your books for every dollar in it, and a list of which tenant each dollar belongs to. If you sell the building, the deposit and accrued interest must transfer to the buyer, and the buyer must notify the tenant in writing within 45 days.

Security deposit interest Massachusetts landlords owe

Interest runs on two balances under slightly different rules.

At the end of each year of the tenancy, the landlord must give the tenant a statement. For the deposit, it shows the bank’s name and address, the deposit amount, the account number, and the interest payable. For last month’s rent, it shows the interest payable. With the statement, the landlord either pays the interest or tells the tenant to deduct it from the next rent payment. If 30 days pass after the anniversary with neither, the tenant may deduct it on their own. Failing to pay last month’s rent interest within 30 days after the tenancy ends can cost the landlord three times that interest, plus costs and fees.

Last month’s rent in Massachusetts: the tax side

The two prepayments are taxed differently. Per IRS Publication 527, a security deposit you plan to return is generally not income when you receive it; any part you keep becomes income in the year you keep it. Last month’s rent is advance rent and is generally income in the year you receive it, regardless of your accounting method. We keep the books and hand a reconciled package to your CPA, or to one of our CPA partners if you need one.

Returning the deposit at move-out

Within 30 days after the tenancy ends, the landlord must return the deposit (or the balance) plus interest. The only permitted deductions are:

1. unpaid rent or water charges not validly withheld under law,
2. an unpaid real estate tax increase owed under a tax escalation clause that complies with c. 186, § 15C, and
3. a reasonable amount to repair damage caused by the tenant or people under their control or on the premises with their consent, reasonable wear and tear excluded.

For damage, the landlord must deliver within the same 30 days an itemized list, sworn under the pains and penalties of perjury, describing in precise detail the damage and the repairs needed, along with written evidence of cost (estimates, bills, invoices, or receipts). File every turnover bill under the unit and tenant, not just the vendor.

The statute also requires a record of every deposit: damage descriptions, the move-out date, whether and when repairs were done, their cost and receipts, plus copies of the receipts and statement of condition. Keep it for two years after the tenancy ends and make it available for tenant inspection during business hours.

Penalties for getting it wrong

Under the statute, a landlord forfeits the right to keep any part of the deposit, and to counterclaim for damage in a tenant’s suit to recover it, if they fail to use a proper account, miss the 30-day itemized list, use a conflicting clause in a lease the tenant signed and try to enforce it, or try to get the tenant to waive any part of the statute, fail to handle a transfer properly, or fail to return what is owed with interest within 30 days.

For the account, transfer, and 30-day return failures, the tenant is awarded three times the deposit or balance owed, plus 5 percent interest from the due date, court costs, and reasonable attorney’s fees. Missing the bank receipt or refusing to show the deposit records entitles the tenant to immediate return of the deposit. Conflicting lease clauses and tenant waivers are void. How this applies to a given dispute is a question for a Massachusetts attorney.

Bookkeeping for rental property: the deposit checklist

Good bookkeeping for rental property turns these rules into a calendar. Run this for each unit.

Move-in

• Confirm the total collected is within the four allowed items.
• Issue the last month’s rent receipt and the signed deposit receipt when the money is paid.
• Deposit the security deposit into the separate Massachusetts deposit account. Never route it through operating.
• Record the deposit as a liability to the named tenant; record last month’s rent as a prepayment.
• Send the bank receipt (bank name and location, amount, account number) within 30 days. Calendar it.
• Deliver the statement of condition by the later of deposit receipt or day 10. Calendar the later of 15 days after the tenant receives it or 15 days after move-in for the tenant’s return and 15 days after any tenant list for your response.
• Save every receipt and the signed statement in the unit’s deposit file.

Monthly

• Reconcile the deposit account to the bank statement.
• Tie the bank balance to the sum of individual tenant deposits, plus any interest credited and not yet paid out. Investigate any difference the same month.
• Record bank interest, up to 5%, to the tenant’s sub-ledger, not to your income.
• Check for upcoming lease anniversaries and move-outs.

Each lease anniversary

• Calculate interest on the deposit (bank rate, capped at 5%) and on last month’s rent (5%, or the bank rate if held in a bank).
• Send the annual statement and either pay the interest or authorize the rent deduction.

Move-out

• Inspect and photograph; compare to the statement of condition.
• Collect invoices or estimates for any repair you plan to deduct.
• Prepare the sworn, itemized damage list with cost evidence.
• Return the balance with all interest within 30 days. Calendar the exact date.
• Update the deposit record and keep it for two years.

Property managers face the same rules at scale; see our security deposit tracking in trust accounting.

A sample deposit ledger

Assumptions: rent is $2,000; the tenant pays a $2,000 deposit and $2,000 last month’s rent on May 20, 2026 for a lease running June 1, 2026 to May 31, 2028. The deposit account pays the equivalent of 0.50% a year, about $10 per year. The landlord keeps last month’s rent in the operating account (not a bank deposit account for that money), so it accrues the full 5%. Figures are illustrative.

The year 2 last month’s rent interest is 11 months ($2,000 × 5% × 11/12 = $91.67) because interest does not accrue for the final month. The refund is $1,750.00 + $101.67 = $1,851.67, paid on June 20, inside the 30-day window that closes June 30, 2028. Had last month’s rent sat in a bank account, its interest would be the lesser of 5% or what the bank paid.

If your deposit ledger lives in a spreadsheet nobody has reconciled, fix it before the next move-out.

Related guides: security deposit accounting for the journal entries, real estate trust accounting for managers holding deposits for owners, and real estate accounting for how deposits fit into the rest of your books.

This article is general information, not tax or legal advice. Talk with your CPA or attorney about your situation.