Typically, when a tenant moves out, you refund their security deposit. If the tenant has caused damages to the property, you usually withhold some or all of the deposit. Here’s how to do that for security deposits that are being held by a rental owner: 

• Withhold an owner-held security deposit from a tenant
• Refund an owner-held security deposit to a tenant

Looking for more info? Check out our Move-ins and Move-outs for Rentals chapter of Buildium Academy.

Withhold a security deposit held by a rental owner

For example, the tenant breaks the lease or damages the unit and loses their security deposit.

First, charge the tenant for damages:

1. Type the tenant’s name into the search bar and select Lease ledger under the tenant’s name.
2. Select Enter charge.
3. Fill out the form with the due date and amount. Enter a memo, and choose the account for the charge.
4. If you’re entering a charge that represents money owed for multiple account types, select Add row to enter additional information and reallocate the total amount.
5. When finished, select Save charge to post the charge to the tenant’s lease ledger.

Next, withhold the security deposit to cover these new charges. By doing this, you’ll turn the funds from a liability into available income.

1. From the Financials tab you’re on select the “...” menu on the right side. 
2. Choose Withhold deposit and complete the form. Apply the deposit to the charge that was just created. 
3. When the form is complete, select the Withhold deposit button.

Now, create an adjusting entry in Buildium within the Owner-Held Security Deposits bank account. This tells Buildium not to pay this new income to the rental owner, since they already have those funds in hand. It also changes the Owner-Held Security Deposits bank account balance to reflect the new amount that the owner has that is still the tenant’s deposit.

To create an adjusting entry:

Record a check to the rental owner from the Owner-Held Security Deposits bank account. 

1. Navigate to Accounting then Banking. 
2. Choose the Owner-Held Security Deposits bank account.
3. Select Record check.
4. Complete the form. Use Owner Draw equity as the offsetting account. The amount must match the withheld amount. This will prevent the balance sheet from being off.
5. Once you've finished filling in the information, select Save.

Refund an owner-held security deposit to a tenant

There are 3 ways to record a tenant refund for a security deposit held by an owner. 

Refund a security deposit:

• Held by an owner using the rental owner's available cash.
• Held by an owner who issues the refund directly to the tenant.
• To the tenant when the refund is completed by your management company.

Refund a security deposit held by an owner using the rental owner's available cash:

In this instance, the rental owner may ask you to refund the tenant's security deposit with the rent money collected from another unit.

1. First, create an adjusting entry in Buildium within the Owner-Held Security Deposits bank account. To create an adjusting entry, you'll need to record a check to the rental owner from the Owner-Held Security Deposits bank account. 
   1. Navigate to Accounting, then Banking. 
   2. Choose the Owner-Held Security Deposits bank account.
   3. Select Record check. Use Owner Draw equity as the offsetting account.
   4. Complete the form. The amount must match the refund amount. This will prevent the balance sheet from being off.
   5. Once complete, select Save.
2. Next, issue a refund to the tenant. Write the refund from wherever the rent money sits in the real world. Use security deposit liability as the offsetting account.
   1. Navigate to Rentals then Rent roll.
   2. Choose the lease you need to show the refund on.
   3. From the lease summary page, navigate to the Financials tab.
   4. Select the “...” menu on the right side. Choose Issue refund.
   5. Complete the form. Choose the bank account to issue the refund from. The Refunding account should default to the liability account where the money was allocated to.
      • Note: If local check printing is enabled for the bank account chosen, enter a check number and select Queue check.
      • Note: When you enter a memo, we recommend including the total amount being refunded.
      • Note: In the Refunding accounts section, you'll see the total liability amount that is available to refund in parentheses. If you're refunding all remaining liabilities, the numbers in the Amount column for the liability should match the amount in the Balance column.
   6. When you've filled out the form, select Save.

Refund a security deposit held by an owner who issues the refund directly to the tenant:

If the rental owner issues a security deposit refund directly to a tenant, you’ll need to record a transaction to show that the funds are no longer being held as security deposit.

1. Navigate to Rentals, then Rent roll.
2. Choose the lease you need to show the refund on.
3. From the lease summary page, navigate to the Financials tab.
4. Select the “...” menu on the right side. Choose Issue refund.
5. Complete the form. Choose Owner-Held Security Deposits as the bank account to show that the funds are no longer being held by the owner.
   • • Note: We suggest adding a memo to note that the money was refunded directly from the owner.
6. When the form is filled out, select Issue refund. 

Refund a security deposit to the tenant when the owner sends the deposit back to your company:

In order to complete this process, you'll first need to create an adjusting entry to show that the rental owner no longer holds the funds. An adjusting entry is not a real check.

1. To create an adjusting entry, record a check to the rental owner from the Owner-Held Security Deposits bank account.
   1. Navigate to Accounting then Banking. 
   2. Choose the Owner-Held Security Deposits bank account.
   3. Select Record check. Use Owner Draw equity as the offsetting account.
   4. Complete the form. The amount must match the refund amount. This will prevent the balance sheet from being off.
   5. Once complete, select Save.
2. Next, record an owner contribution from the rental owner to represent the check that they gave you for the deposit.
   1. Navigate to Rentals then Rental owners.
   2. Select the “...” menu on the right side. Select Record contribution.
   3. Complete the form then select Save.
3. Then, record the deposit of the owner contribution into the bank account where you received the funds in the real world.
4. Finally, issue a refund to the tenant. Write the refund from wherever the deposit money sits in the real world. Use security deposit liability as the offsetting account.
   1. Navigate to Rentals then Rent roll.
   2. Choose the lease you need to provide a refund for.
   3. From the lease summary page, navigate to the Financials tab.
   4. Select the “...” menu on the right side. Choose Issue refund.
   5. Complete the form. Choose the bank account to issue the refund from.
      • Note: If local check printing is enabled for the bank account chosen, enter a check number and select Queue check.
      • Note: When you enter a memo, we recommend including the total amount being refunded.
      • Note: In the Refunding accounts section, you'll see the total liability amount that is available to refund in parentheses. If you're refunding all remaining liabilities, the numbers in the Amount column for the liability should match the amount in the Balance column.
   6. When you've filled out the form, select Save.

Looking for more information? 

• Check out Move-ins and Move-outs for Rentals in Buildium Academy.
• How to set up owner-held security deposits
• Learn how to receive security deposits.