DEFINITION of 'Security Deposit'

A monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction. As the name implies, the deposit is intended as a measure of security for the recipient.

BREAKING DOWN 'Security Deposit'

Landlords generally apply security deposits as rent from tenants who cannot otherwise pay or use them to repair damage caused by tenants.

Security deposits are not considered taxable income. Local laws often treat security deposits as trust funds. Security deposits that are used as final rent payments must be claimed as advance rent and are taxable when paid.

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RELATED FAQS
  1. What is the difference between a demand deposit and a term deposit?

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these two types ... Read Answer >>
  2. For what types of accounts are demand deposits available?

    Learn about the different types of accounts designated as demand deposit accounts, such as savings accounts and money market ... Read Answer >>
  3. What proportion of my income should I put into my demand deposit account?

    Find out how much money to keep in your liquid demand deposit accounts, such as checking or savings accounts, and discover ... Read Answer >>
  4. Do landlords set up escrow accounts for their tenants' security deposits?

    Learn when and why landlords place rental property security deposits in separate escrow accounts to make sure the money is ... Read Answer >>
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