Security Deposits Are Not Your Money (Yet): What Maine Landlords Need to Know About Tracking Them
Summer is peak turnover season for Maine rentals. Leases end, new tenants move in, and security deposits change hands — sometimes several in the same month if you own multiple units.
Here's the thing about a security deposit: it sits in your bank account, but it isn't your money. Not yet, and maybe not ever. And how you track it matters — both for your books and for Maine law.
This post covers what the law expects, how to record deposits correctly in your books, and what happens when a deposit does become yours.
A security deposit is a liability, not income
When a tenant hands you a deposit, you're holding their money as protection against damage or unpaid rent. In bookkeeping terms, that makes it a liability — an amount you owe back — not income.
If deposits are landing in your account and getting recorded as rental income (or not recorded at all), two things go wrong. Your income is overstated, which means you could pay tax on money that was never yours. And when it's time to return a deposit, you may find the money was quietly absorbed into operating cash and spent.
What Maine law requires
Maine's landlord-tenant statutes have specific rules around security deposits, and they're worth knowing cold. A few of the big ones: deposits are generally capped at two months' rent; deposit funds must be kept separate from your own money, held in an account at a Maine bank or financial institution; and when a tenancy ends, you have a deadline to return the deposit — generally 30 days under a written lease, or 21 days for a tenancy at will. If you withhold any portion, you're required to provide an itemized written statement of why.
(A quick note: this is bookkeeping guidance, not legal advice — the statutes have details and exceptions worth reviewing, especially if you own larger buildings.)
Notice how well the legal requirement and the bookkeeping best practice line up: the law says keep the money separate, and good bookkeeping says track it separately. Do both and you're covered.
How to set it up in QuickBooks
Create a liability account called something like "Security Deposits Held." Every deposit received gets recorded there — never to income. If you have multiple tenants or properties, use sub-accounts, or tag each deposit by property and tenant, so you always know exactly whose money you're holding and how much.
Pair that liability account with a dedicated bank account where the deposit funds physically sit. Your books and your bank then tell the same story: this money is spoken for.
When a tenant moves out and you return the deposit, the payment clears the liability. Clean in, clean out — and it never distorts your rental income along the way.
When a deposit becomes your money
If you legitimately withhold part of a deposit — for damage beyond normal wear and tear, or unpaid rent — that's the moment the withheld portion becomes income. Reclassify it from the liability account to income, record the repair costs as expenses, and keep everything that supports the decision: the itemized statement you're required to send, plus photos, invoices, and receipts.
This documentation isn't just for the tenant. If a withholding is ever disputed, your records are what carry the day.
Turnover season habits that make all of this easier
Two habits pay for themselves many times over. First, document condition at move-in and move-out — dated photos of every room take fifteen minutes and remove nearly all ambiguity about what changed. Second, record the deposit transaction the day it happens, while the details are fresh, rather than reconstructing it months later from a bank statement.
The bottom line
Security deposits are one of those areas where sloppy tracking creates real risk — legal, financial, and relational. Tracked correctly, they're simple: a liability that comes in, sits safely in its own account, and goes back out.
If you're holding deposits right now and you're not sure your books reflect them properly, mid-summer — with turnover season in full swing — is exactly the right time to fix it.
McAfee's Bookkeeping works with Maine property owners to set up clean books that keep tenant deposits, rental income, and expenses exactly where they belong. If you'd like help getting your rental finances organized, a free consultation is a good place to start. Schedule here
