Security Deposit Law
What Iowa landlords must do with security deposits — the cap, interest, return deadline, account rules, and penalties — with citations to the statute itself.
Verified as of June 11, 2026
This page is general information, not legal advice. Statutes change — verify with the cited sources or an attorney.
Deposit cap
Two months' rent maximum.
Interest
No interest owed to the tenant for the first five years; the account may be interest-bearing but is not required to be.
Return deadline
30 days from termination of the tenancy and receipt of the tenant's mailing address or delivery instructions.
Iowa caps the security deposit at two months' rent: a landlord "shall not demand or receive as a security deposit an amount or value in excess of two months' rent." The cap applies to the amount or value received, so anything collected as a security deposit counts toward it.
Deposits may be held in an interest-bearing account, and "any interest earned on a rental deposit during the first five years of a tenancy shall be the property of the landlord." The statute is silent on interest earned after year five; by implication it is no longer the landlord's property, so for tenancies longer than five years the cautious practice is to credit later-earned interest to the tenant.
The 30-day clock runs from the later of tenancy termination and receipt of the tenant's mailing address or delivery instructions. Within that window the landlord must return the deposit or give a written statement of the specific reason for withholding; if money is kept for restoring the unit, the statement must specify the nature of the damages. Lawful deductions are limited to unpaid rent or other funds due under the rental agreement, restoring the unit to its move-in condition (ordinary wear and tear excepted), and expenses of recovering possession from a bad-faith holdover tenant.
Deposits must be held for the tenant in a bank, savings and loan association, or credit union insured by a federal agency, and "shall not be commingled with the personal funds of the landlord." They may be held in a trust account, which may be a common trust account and may be interest-bearing.
A landlord who fails to provide the written statement within 30 days of termination and receipt of the tenant's address "shall forfeit all rights to withhold any portion of the rental deposit." Bad-faith retention subjects the landlord to "punitive damages not to exceed twice the monthly rental payment in addition to actual damages," and the court may award reasonable attorney fees to the prevailing party in any action on a rental agreement.
Iowa's deposit rules in chapter 562A apply statewide, and our searches surfaced no Iowa city or county ordinance imposing its own deposit cap, interest, or return-deadline rules (Iowa City's tenant-related ordinances, for example, concern source-of-income discrimination and mediation, not deposits). We could not exhaustively verify every municipality, so check your city's rental housing code; many Iowa cities do require rental permits and inspections, which affect operations but not deposit handling.
You may not demand or receive a security deposit whose amount or value exceeds two months' rent. Set your deposit when you set the rent and check it whenever rent changes mid-tenancy.
Deposits go in a federally insured bank, savings and loan, or credit union and must stay separate from your personal funds. A common trust account covering multiple tenants is allowed, and it may earn interest.
Within 30 days of tenancy termination and receipt of the tenant's mailing address or delivery instructions, return the deposit or send a written statement with the specific reason for each withholding. If you withhold for restoration of the unit, the statement must specify the nature of the damages.
You may withhold only amounts reasonably necessary to (1) cover unpaid rent or other funds due under the rental agreement, (2) restore the unit to its move-in condition, ordinary wear and tear excepted, or (3) recover expenses of regaining possession from a tenant who in bad faith fails to surrender the premises. In court, the burden of proving the reason for withholding is on the landlord by a preponderance of the evidence.
If the tenant provides no mailing address or delivery instructions within one year of termination, the deposit reverts to the landlord and the tenant is deemed to have forfeited all rights to it. Document the date of termination and your attempts to obtain an address.
On termination of your interest in the unit, transfer the deposit (less lawful deductions) to your successor and notify the tenant of the transfer and the transferee's name and address, or return it to the tenant; doing so relieves you of further liability. The successor's obligation is limited to the noticed amount if the tenant does not object within twenty days of written notice, which must include a stamped envelope addressed to the successor.
You forfeit all rights to withhold any portion of the deposit — even for legitimate damage or unpaid rent — and bad-faith retention can add punitive damages of up to twice the monthly rent plus actual damages.
The statute flatly prohibits commingling deposits with the landlord's personal funds and requires a federally insured bank, savings and loan, or credit union; commingling is a statutory violation that undercuts your position in any deposit dispute.
Restoration deductions are limited to returning the unit to its commencement condition "ordinary wear and tear excepted," and the landlord bears the burden of proof in court — weak documentation plus wear-and-tear charges is how landlords lose deposit cases and pay the tenant's attorney fees.
The statement must show the specific reason for withholding, and if money is kept for restoration it must specify the nature of the damages; a generic "cleaning and repairs" line invites a court to treat the statement as noncompliant and the withholding as forfeited.
Until you transfer the deposit to the buyer and notify the tenant (or return it to the tenant), you remain liable for it; compliance with the transfer-and-notice procedure is what relieves you of further liability.
Up to two months' rent. Iowa Code § 562A.12(1) says a landlord "shall not demand or receive as a security deposit an amount or value in excess of two months' rent." If rent is $1,200, the most you can hold as a security deposit is $2,400.
30 days — but the clock starts at the later of the tenancy ending and your receipt of the tenant's mailing address or delivery instructions. Within those 30 days you must either return the deposit or send a written statement giving the specific reason for each amount withheld. If the tenant never provides an address, the deposit reverts to you after one year.
Not for the first five years. The account may be interest-bearing, and any interest earned during the first five years of a tenancy is the landlord's property by statute. The statute does not expressly address interest earned after year five; the common reading is that it is no longer the landlord's to keep, so if a tenancy runs longer than five years the safe practice is to track and credit later-earned interest to the tenant.
Yes. Deposits must be held for the tenant in a federally insured bank, savings and loan association, or credit union, and they cannot be commingled with your personal funds. You may use a single trust account covering deposits from multiple tenants.
Only amounts reasonably necessary for three things: unpaid rent or other money owed under the rental agreement; restoring the unit to its move-in condition, excluding ordinary wear and tear; and the cost of recovering possession from a tenant who in bad faith refused to surrender the premises. If the tenant sues, you carry the burden of proving each withholding was justified.
Missing the 30-day deadline for the written statement forfeits your right to withhold any portion of the deposit. If a court finds you retained the deposit in bad faith, it can add punitive damages of up to twice the monthly rent on top of actual damages, and it may award attorney fees to the prevailing party.
This page is general information, not legal advice. Statutes change — verify with the cited sources or an attorney.
Statute facts on this page were verified against the cited official sources on June 11, 2026.
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