Security deposits

Bottom line first. You may hold no more than two months of rent as a security deposit. You must return it, with a written list of exact reasons for anything you keep, within one month after the tenant leaves (or up to 60 days if the lease says so). Miss the list and you lose the right to keep any of it. This lesson is general education, not legal advice.

What counts as a security deposit

A security deposit is any advance or deposit of money, whatever you call it, whose main job is to secure the tenant's performance of the lease (38-12-102(6)). Calling it a “cleaning fee” or a “holding deposit” does not change that if its main job is to secure the lease. The law says these rules are to be read broadly so deposits are handled properly and the interests of both sides are protected (38-12-101).

The cap: two months of rent

On and after August 7, 2023, a landlord may not require a security deposit larger than two monthly rent payments under the rental agreement (38-12-102.5). The statute names no exceptions to this cap, so assume it covers every lease you sign.

Pet deposits and pet rent

If you let a tenant keep a pet, you may not demand or receive an extra security deposit of more than $300 for the pet, and it must be refundable. You also may not demand extra monthly rent for the pet above the greater of $35 a month or 1.5 percent of the tenant's monthly rent (38-12-106). “Pet rent” is that extra monthly charge. The section took effect January 1, 2024. The text we reviewed does not say how a pet deposit fits inside the two-month cap, so ask a lawyer before stacking both.

Returning the deposit

The clock and the paperwork are what trip up most landlords:

• Deadline. Return the deposit within one month after the lease ends or the tenant gives up the premises and you accept it, whichever comes last. The lease can set a longer period, but not more than 60 days (38-12-103(1)).
• No deductions for normal wear and tear. Wear and tear is ordinary aging from use, without carelessness or abuse (38-12-102(4)).
• What you may keep. You may keep money for unpaid rent, abandonment of the home, and unpaid utilities, or repair or cleaning work that the tenant contracted for (38-12-103(1)). For any other real cause, such as damage beyond normal wear, you may keep what the damage truly costs.
• The written statement. If you keep any part, you must give the tenant a written statement listing the exact reasons. Send it with a payment for the rest of the deposit. Mailing both to the tenant's last known address counts as meeting this rule (38-12-103(1)).

If you do not send the statement within the time allowed, you forfeit, meaning give up, every right to withhold any part of the deposit (38-12-103(2)). Any lease term where the tenant waives these protections is void (38-12-103(7)).

Penalties

Since January 1, 2026, a landlord is presumed to have kept an unreasonable amount if the amount kept is 125 percent or more of the actual damages. In a tenant's court case under the act, the landlord has to prove the amount of the actual damages (HB25-1249).

If you willfully keep a deposit in violation of the law, you owe treble (three times) the amount you wrongly withheld, plus reasonable attorney fees and court costs. The tenant must tell you at least seven days before filing a case (38-12-103(3)(a)). In court, you carry the burden of proving that your withholding was not wrongful (38-12-103(3)(b)). That is why photos, receipts and invoices matter.

Carpet and paint (2026 rule)

You have no cause to keep deposit money for new carpet or paint unless the carpet has substantial and irreparable damage, or the paint has substantial damage, beyond normal wear and tear that was not there when the tenancy began. Even then you may keep only the minimum needed to replace the carpet, or repaint, in the damaged area. Carpet that has not been replaced with new carpet in the 10 years before the lease ended or the home was surrendered cannot be called substantially and irreparably damaged (HB25-1249).

If you sell or stop being the landlord

When your interest in the home ends by sale, death or a similar event, whoever holds the deposit must, within 60 days after your interest ends (HB25-1249, effective January 1, 2026), either transfer the funds to the new owner and notify the tenant by mail of the transfer and the new owner's name and address, or return the funds to the tenant. After that, the person is relieved of further liability, and the new owner takes on your duties (38-12-103(4) to (6)).

Some statute websites still show older text, so check the bill summaries on leg.colorado.gov. The 2025 act (HB25-1249) changed deposit rules from January 1, 2026.

The gas hazard rule

If gas service personnel give a tenant a written notice of a hazardous gas appliance, pipe or equipment, the tenant must immediately tell you in writing. You then have 72 hours, not counting Saturdays, Sundays and legal holidays, after you actually receive the notice to have a licensed or qualified professional repair it. If you do not and the hazard remains, the tenant may leave, the lease ends, and you must deliver the deposit (less any lawful deductions) plus any rent rebate within 72 hours after the tenant vacates. A late or missing return in this case is deemed willful and wrongful, and the tenant is owed twice the amount of the security deposit plus reasonable attorney fees (38-12-104). Proof of a professional repair can be used as a defense in a deposit case.

Cities such as Denver and Boulder may have their own deposit or lease rules, so check your city and a lawyer.

Example with real numbers

Marcus rents a house to Priya for $1,900 a month.

1. The most he may require as a deposit: 2 x $1,900 = $3,800 (38-12-102.5). He asks for $1,900.
2. Priya has a dog. He may ask for a refundable pet deposit of up to $300. For pet rent, 1.5 percent of $1,900 = $28.50, which is less than $35, so the cap is $35 a month (38-12-106).
3. The lease ends January 31 and Priya returns the keys that day. The default deadline is one month later: February 28.
4. Marcus finds $350 in unpaid rent and $250 to replace a damaged section of carpet that has substantial, irreparable damage beyond wear (HB25-1249). Faded paint is wear and tear, so no charge.
5. He keeps $350 + $250 = $600 and sends a written statement listing both items plus a check for $1,900 - $600 = $1,300, by February 28.

If instead Marcus had willfully held back an extra $250 for repainting, he would owe treble: 3 x $250 = $750, plus attorney fees and costs.