Security deposits used to be the simplest part of being a California landlord. Collect first month, last month, and a deposit; deduct what you need at move-out; return the rest. Two new laws — AB 12 and AB 2801 — changed that, and the owners getting tripped up in 2026 are the ones still operating on the old rules.
This is the practical version: what the deposit cap actually is now, who qualifies for the small-landlord exception, what you can and can’t deduct, and the documentation you need before move-out — not after — to avoid handing a tenant an easy win in small claims court.
The headline: deposits are capped at one month’s rent
As of July 1, 2024, AB 12 caps the security deposit a California landlord can collect at one month’s rent — and that’s true whether the unit is furnished or unfurnished. The old rule (two months for unfurnished, three for furnished) is gone.
“Security deposit” here is broad. It includes any payment beyond the first month’s rent that you hold as security — cleaning deposits, pet deposits, key deposits, “last month’s rent” held as security, and the deposit itself all count toward the one-month ceiling collectively.
Worth knowing: You can still collect first month’s rent plus a one-month deposit at signing. What you can no longer do is stack a deposit, a pet deposit, and a cleaning deposit that together exceed one month’s rent.
The small-landlord exception (and its limits)
There’s a narrow carve-out. A landlord can collect up to two months’ rent as a deposit only if all of these are true:
- The landlord is a natural person, or an LLC in which every member is a natural person
- The landlord owns no more than two residential rental properties that
- Collectively contain no more than four dwelling units total
Even if you qualify, there’s an override: if your prospective tenant is a service member (active-duty military), the one-month cap applies regardless. You cannot use the two-month exception against a service member.
For most owners working with a management company, or anyone holding more than two properties or more than four units, the exception doesn’t apply — you’re on the one-month cap.
What you can deduct at move-out
California Civil Code §1950.5 has always governed deductions, and the categories haven’t changed. You may deduct for:
- Unpaid rent.
- Cleaning necessary to return the unit to the level of cleanliness it was in at the start of the tenancy.
- Repair of damage beyond normal wear and tear, caused by the tenant or their guests.
- Restoration or replacement of personal property (furnishings, keys) if the lease allows it.
The line that generates almost every dispute is “normal wear and tear.” Faded paint, minor carpet wear, small nail holes, and lightly worn finishes are wear and tear — you eat those. Burns, large holes, pet damage, broken fixtures, and filth are damage — those you can charge for. When in doubt, the burden is on you to show the deduction is reasonable.
AB 2801: the photo documentation rules
This is the one most owners haven’t adjusted to yet. AB 2801 adds photo requirements to the deduction process, phased in over 2025:
Effective April 1, 2025 — move-out and post-repair photos
When you take deductions from a deposit, your itemized statement must now be accompanied by photographs of the unit taken at move-out (after the tenant left, showing the condition that justifies the deduction) and, if repairs are done, photographs taken after the repair. The deduction has to be tied to documented condition, not a line item on a spreadsheet.
Effective July 1, 2025 — move-in photos
For tenancies that begin on or after this date, you must take photographs of the unit immediately before or at the start of the tenancy. This is your “before” baseline — the comparison point that makes a move-out deduction defensible.
The practical takeaway: build photo documentation into your move-in and move-out process now, every time, for every unit. A deduction without a before-and-after photo trail is a deduction a tenant can challenge — and increasingly, win.
The 21-day rule still controls everything
None of this changes the deadline. You have 21 calendar days after the tenant moves out to either return the full deposit or deliver an itemized statement of deductions plus any remaining balance. Miss it, and you can be liable for the full deposit — sometimes with penalties of up to twice the deposit amount for bad-faith retention.
If a single repair will exceed $125 and can’t be completed within 21 days, you may provide a good-faith estimate and follow up with receipts within 14 days of completing the work — but the initial statement still goes out inside the 21-day window.
Where owners lose: Not over the size of a deduction, but over the deadline and the documentation. A reasonable $1,800 carpet charge with photos and a receipt, sent on day 19, holds up. A vague “cleaning and damages — $1,800” with no photos, sent on day 28, is a refund waiting to happen.
Common 2026 mistakes we still see
- Collecting more than one month. Stacking a deposit + pet deposit that exceeds one month’s rent — even with consent — is not enforceable.
- Assuming the small-landlord exception applies. Owning a duplex and a single-family home is fine; owning three properties is not. Count carefully.
- Skipping move-in photos. Without a documented “before,” your “after” proves nothing.
- Charging for wear and tear. Repainting after a normal three-year tenancy is a cost of doing business, not a deductible.
- Missing the 21-day clock because a contractor was slow. Send the estimate; follow up with receipts.
Frequently asked questions
Can I charge a non-refundable cleaning fee instead of a deposit?
No. California does not permit non-refundable deposits or fees of this kind for residential tenancies. Cleaning must be handled as a deduction from the refundable deposit, supported by documentation.
Does the one-month cap apply to existing tenants?
The cap applies to deposits collected on or after July 1, 2024. You generally don’t have to refund the difference on a deposit lawfully collected before then — but you can’t top it up, and any new tenancy is subject to the cap.
Can I require a larger deposit for a tenant with a pet or poor credit?
The one-month ceiling applies regardless of pets or credit. You can decline an application or use a qualified co-signer, but you cannot exceed the cap to offset perceived risk (subject to the narrow small-landlord exception above).
Do I have to pay interest on the deposit?
Statewide, no — but several jurisdictions, including the City of Los Angeles for many RSO units, require landlords to pay annual interest on security deposits. If your property is in a city with a deposit-interest ordinance, that obligation still applies on top of state law.
Not sure your deposit process is compliant?
We handle move-in documentation, 21-day itemizations, and deposit interest on every unit we manage — so a single missed deadline never costs you the whole deposit. Get a free 30-minute owner consultation.
Disclaimer: This article is general information for California rental property owners and is not legal advice. Security deposit law — including AB 12, AB 2801, and local ordinances such as the City of Los Angeles deposit-interest requirement — is detailed and changes over time, and how it applies depends on your specific property and circumstances. Consult a qualified California real estate attorney before making decisions about your deposits, deductions, or lease terms.
