Understanding Illinois security deposit laws in 2025 is essential for both landlords and tenants to avoid legal conflicts and ensure fair treatment in every rental agreement. Whether you’re renting a small apartment or managing dozens of rental units, staying informed about these laws can save you from financial penalties, security deposit disputes, or tenant complaints.
Illinois law imposes strict rules on how a security deposit is handled—from how much can be collected, to when and how it must be returned. And in 2025, new changes are in place that further protect tenant rights and define landlord responsibilities more clearly than ever before.
Key Takeaways for 2025
Illinois landlords can now charge up to two months’ rent as a security deposit in some cases.
Interest paid on security deposits is required for leases over 6 months, and must be deposited into a separate bank account. The interest paid must be given to the tenant as required by law.
Landlords must provide an itemized statement of any deductions, including paid receipts or invoices.
Written notice is mandatory within 30 days of a tenant vacating the property.
Violations may result in tenants recovering twice the amount of their deposit, plus reasonable attorney’s fees.
What Is a Security Deposit and Why Does It Matter?
A security deposit is a sum of money a tenant pays the landlord before moving into a rental unit. Illinois law provides specific protections for the tenant’s security deposit, including requirements for how it is handled, returned, and any allowable deductions. It serves as insurance for landlords against unpaid rent, property damage beyond normal wear and tear, and lease violations. In Illinois, this deposit must be returned—or partially returned—with a detailed explanation after the tenant moves out.
Why Illinois Security Deposit Laws Exist
Illinois has implemented specific rules to govern how security deposits are collected, held, and returned. These laws aim to preserve the landlord-tenant relationship, encourage responsible renting, and minimize disputes.
Laws such as the Illinois Security Deposit Return Act and the Security Deposit Interest Act ensure fairness by mandating timelines, interest payments, and proper documentation of deductions. These laws also require landlords to properly handle such security deposit in accordance with state regulations.
Major Changes to Illinois Security Deposit Laws in 2025
1. Higher Maximum Security Deposits in 2025
Illinois now allows landlords—especially those outside city limits or managing five or more units—to collect up to two months’ rent as a deposit under certain conditions. The law also applies to landlords with 25 or more units in either a single building or a complex of buildings on contiguous parcels. However, this must still be clearly defined in the rental agreement.
2. Mandatory Receipts and Itemized Deductions
Landlords must issue a verified electronic mail address or physical receipt listing the amount collected, due date, and the rental unit address. When deductions are made, the estimated or actual cost for each must be detailed along with paid receipts, especially if the deduction exceeds $126. Landlords are required to provide documentation for all estimated or actual costs deducted from the deposit, ensuring that each of the estimated or actual costs is clearly itemized and supported by receipts or other evidence.
3. Stricter Deadlines and Penalties
The deposit must be returned within 30 days if no deductions are made, or within 45 days if deductions apply. Failure to comply could result in the landlord being liable for twice the amount of the deposit, plus reasonable attorney’s fees and court costs. If a landlord refuses to return the deposit or provide the required documentation, additional penalties may apply.
What Can a Landlord Deduct from the Security Deposit?
Landlords are allowed to make deductions only for:
Unpaid rent or fees
Cleaning charges, only if the unit was left excessively dirty
Damages that breach the lease agreement
These deductions must be supported by paid receipts and presented in a written notice.
What Is Considered Normal Wear and Tear?
Normal wear and tear includes minor issues like:
Faded paint
Light carpet wear
Small nail holes in walls
Landlords cannot deduct for these. However, broken appliances, large stains, or holes in walls may qualify as legitimate deductions under Illinois landlord tenant law.
Do Landlords Have to Pay Interest on Security Deposits?
Yes—if the lease is longer than six months and the building contains five or more units, landlords must deposit the funds in an interest bearing account and pay interest annually. The rate is based on the largest commercial bank in Illinois.
Is the Security Deposit Held in a Separate Bank Account?
Yes, Illinois law mandates that security deposits held must be placed in a separate bank account. Commingling these funds with personal or business accounts is illegal and may result in penalties.
Can a Landlord Charge a Non-Refundable Security Deposit?
No. By definition, a security deposit must be refundable. Move-in fees, however, are separate and may be non-refundable if clearly stated in the lease. Make sure this distinction is understood in any rental agreements you sign.
Can Tenants Use the Deposit to Cover Last Month’s Rent?
No. Unless specifically stated in the lease, tenants cannot treat the security deposit as payment for the last month’s rent. The security deposit cannot be applied to cover the last month’s rent unless the tenant and landlord agree in writing. Unless the tenant and landlord specifically agree in writing, the security deposit cannot be used for any month’s rent. Doing so can result in lease violation and legal consequences.
Legal Remedies When the Landlord Fails to Return the Deposit
If a landlord fails to return the deposit within the legal timeframe or doesn’t provide an itemized statement, tenants can:
File in small claims court
Demand twice the deposit amount
Seek reimbursement for attorney’s fees and court costs
Recover attorney fees as part of court awards or penalties if the landlord fails to comply with security deposit laws
Lease agreements may also specify whether the losing party must pay the landlord’s attorney’s fees or the tenant’s attorney’s fees in a dispute, which can influence the outcome and costs of legal action.
How Local Ordinances Affect Security Deposits
Some cities, like Chicago, have local ordinances that are stricter than state laws. For example, landlords in Chicago must:
Provide interest even if the building has fewer than five units
Include a summary of tenant rights when collecting the deposit
Always verify if local law provides additional protections in your area. Some local ordinances may also have specific rules for mobile home parks regarding security deposits.
Common Illinois Security Deposit Disputes
Security deposit disputes typically occur when:
Deductions are unclear or undocumented
The landlord delays the return
There’s disagreement over wear and tear
The deposit wasn’t placed in a separate account
Disputes arise after the tenant moved out, especially if the return of the deposit is delayed or deductions are not clearly explained
Documentation, photos at move-in/move-out, and proper communication can prevent many of these issues.
Tax Implications of Security Deposit Laws
Understanding the tax implications of security deposit laws in Illinois is crucial for both landlords and tenants. Generally, a security deposit is not considered taxable income for the landlord at the time it is collected. However, if any portion of the security deposit is retained to cover unpaid rent or damages beyond normal wear and tear, that amount must be reported as income on the landlord’s tax return. At the same time, landlords may be able to deduct the actual cost of repairs or cleaning as business expenses, provided they have proper documentation such as receipts and invoices.
For tenants, if a security deposit is forfeited to cover unpaid rent or damages, there may be limited tax implications, but it’s important to keep records in case the situation affects your tax filings. Both parties should maintain detailed records of all security deposits, including any deductions and supporting documentation, to ensure compliance with tax laws and to be prepared in the event of an audit or dispute.
Breach of Contract and Security Deposit
A breach of contract can occur when a landlord fails to return the security deposit or makes deductions that are not authorized under the lease agreement or Illinois law. The Security Deposit Return Act sets out clear requirements for how and when a landlord must return the security deposit, including providing tenants with an itemized statement of any deductions. If a landlord fails to comply—by withholding the deposit without justification or not providing the required documentation—the tenant may have grounds to pursue legal action.
In such cases, tenants can seek to recover the full amount of the security deposit, and may also be entitled to additional damages and reasonable attorney’s fees. To avoid breach of contract claims, landlords should always follow the Security Deposit Return Act, return the security deposit within the required timeframe, and provide tenants with a detailed itemized statement for any deductions made. Clear communication and adherence to the lease agreement are key to maintaining a positive landlord-tenant relationship and preventing costly disputes.
Important Resources for Tenants and Landlords
Navigating Illinois security deposit laws can be challenging, but there are several valuable resources available to help both tenants and landlords. The Illinois Attorney General’s office offers comprehensive guidance on security deposit laws and can assist with resolving security deposit disputes. The Illinois Department of Human Rights provides information on fair housing laws and can help address discrimination concerns related to rental agreements.
Local tenant unions are another excellent resource, offering support, education, and advocacy for tenants facing issues with their security deposits. Additionally, online resources such as the Illinois General Assembly website and the Chicago Rent Ordinance website provide up-to-date information on state and local security deposit laws, including specific rules for different municipalities. Utilizing these resources can help ensure that both landlords and tenants understand their rights and responsibilities, and can resolve disputes more effectively.
Frequently Asked Questions (FAQs)
What is the maximum security deposit a landlord can charge in Illinois in 2025?
In most cases, the maximum security deposit is equal to one month’s monthly rent. However, in some cases (e.g. outside certain municipalities or under specific rental agreements), landlords may charge up to two months’ monthly rent.
Does the landlord have to pay interest on the security deposit?
Yes, if the rental is longer than 6 months and the building has five or more units, interest must be paid annually based on rates from the largest commercial bank in Illinois.
What happens if the landlord fails to return the security deposit on time?
Tenants may sue to recover twice the amount, plus attorney’s fees and court costs under the Illinois Security Deposit Return Act if the landlord fails to return the deposit within the statutory period after the tenant vacates the unit. The deadline for returning the deposit is based on when the tenant’s right to possession ends. If the tenant fails to pay rent or fulfill other obligations, the landlord may deduct those amounts from the deposit.
Can a landlord deduct for repainting the unit?
Only if the repainting is necessary due to damages beyond normal wear and tear—not just to refresh the unit.
Is a move-in fee treated the same as a security deposit?
No. Move-in fees are not refundable and are not subject to the same protections unless misrepresented as a deposit.
Final Thoughts
Illinois Security Deposit Laws in 2025 have evolved to better protect tenants while maintaining clear responsibilities for landlords. Whether you’re dealing with lease violations, repair costs, or deposit interest, understanding your rights is essential.
For tenants, knowing when and how to act can prevent financial loss. For landlords, compliance ensures trust and avoids penalties. In any landlord-tenant relationship, clarity, documentation, and respect for the law create the best foundation.
SIGN-UP FOR PAYRENT
- Control when and how renters pay you
- Automatically remind tenants when rent is due
- Accept bank transfers and credit cards
Dave is a seasoned real estate investor with over 12 years of experience in the industry. Specializing in single-family residential real estate, David’s strategic approach combines market analysis, financial acumen, and a deep understanding of urban development trends to maximize investment returns.
