You just approved a great applicant. Stable job, clean history, excellent references — and a 70-pound dog. You quote a $500 pet deposit, $50 a month in pet rent, and a $250 nonrefundable pet fee, and the applicant happily agrees. Everything feels settled until you learn that in your state, one of those three charges is illegal, one counts toward a cap you already hit with the security deposit, and one creates taxable income you were never planning to report.
Pet-friendly rentals are the market norm now — a September 2026 Zillow analysis found that 77% of rental listings allow pets, and landlords who refuse them shrink their applicant pool for no reason. But how you charge for pets matters far more than whether you do. Get the structure right and pet charges protect your floors, your doors, and your margins. Get it wrong and you hand your tenant a refund claim, surprise yourself at tax time, or violate a state cap you never knew existed.
This guide breaks down the three types of pet charges, the state limits that apply to each, and exactly how to record them in your books.
The Three Charges, Defined
Landlords use "pet deposit," "pet fee," and "pet rent" almost interchangeably in conversation, but legally and for tax purposes they are three different things. Mixing up the labels is the single most common mistake in this area, so start here.
Pet deposit: refundable money held against damage
A pet deposit is money you collect up front and hold to cover damage the animal may cause — scratched doors, stained carpet, chewed trim. Like a general security deposit, it belongs to the tenant until you have a lawful reason to keep part of it. At move-out you return whatever you did not spend on pet-related repairs, with an itemized statement, inside your state's deadline.
Two rules follow from that definition. First, a deposit identified as a pet deposit can only be applied to pet-related damage, not to unpaid rent or general wear. Second, calling something a "nonrefundable deposit" does not make it one — in most states, a deposit is refundable by definition, and slapping "nonrefundable" on the label just creates a contradiction a judge will resolve in the tenant's favor.
Market practice for pet deposits typically runs $200 to $500, though industry surveys have found averages ranging from $100 up to 40 to 85 percent of a month's rent in pet-friendly buildings. Your state's cap, not the market, sets your ceiling — more on that below.
Pet fee: a one-time nonrefundable charge
A pet fee is a one-time payment the tenant never gets back. Landlords use it to price in the expected extra wear, the deep clean between tenants, or simply the privilege of keeping an animal on the property. Because it is nonrefundable, it is income to you the moment you receive it — there is nothing to hold, escrow, or return.
The catch is that several states restrict or effectively ban nonrefundable fees. California is the big one: state law provides that a lease may not characterize any security as nonrefundable, so a "nonrefundable pet fee" in California is on shaky legal ground and most cautious landlords there avoid the label entirely. Always check your state before adding a fee your deposit statute does not recognize.
Pet rent: a monthly surcharge
Pet rent is a recurring monthly amount added to the base rent for the privilege of housing a pet — commonly $25 to $100 per month, per animal. Unlike a deposit, it is not collateral held for later; it is rent, reported as rental income and spendable immediately. Unlike a fee, it keeps arriving every month, which makes it the highest lifetime-value pet charge: $50 a month over a two-year tenancy is $1,200, more than double a typical deposit.
Because pet rent is rent, it is generally outside security-deposit caps — with one notable exception. Colorado caps pet rent at $35 per month or 1.5 percent of the monthly rent, whichever is greater. Everywhere else, pet rent is limited only by what the market will bear and whatever your lease says.
| Charge | When paid | Refundable? | Income when? | Usually capped? |
|---|---|---|---|---|
| Pet deposit | Move-in | Yes | Only the part you keep, in the year you keep it | Yes — by deposit caps |
| Pet fee | Move-in | No | Immediately, when received | Sometimes — some states bar nonrefundable fees |
| Pet rent | Monthly | No | Each month, as received | Rarely — Colorado is the exception |
What Your State Lets You Charge
State law sorts into three buckets: states with no deposit limit at all, states where the pet deposit counts toward the general security-deposit cap, and states with a pet-specific limit. Knowing your bucket is the whole game.
No-limit states: the market decides
Roughly half the states — including Texas, Florida, Illinois, Ohio, Indiana, and Washington among them — place no statutory limit on security deposits, pet or otherwise. In these states you can legally collect a full security deposit plus a pet deposit plus a fee, constrained only by competition. That freedom cuts both ways: overcharging upfront pushes good applicants with pets to the listing down the street, and 77 percent of listings now compete for them.
Counted-toward-the-cap states: the pet deposit eats your allowance
In the second bucket, a pet deposit is just more security deposit, and the total of everything you collect cannot exceed the general cap. This is where landlords most often trip, because they quote a full security deposit and then stack a pet deposit on top.
- California caps total deposits at one month's rent (two months for qualifying small landlords and mobile homes, under the AB 12 rules in effect since July 2024). A pet deposit comes out of that same allowance — if you already collected one month's rent as a security deposit, there is no room left for any pet deposit at all. Note that the much-discussed 2024 bill that would have restricted blanket no-pets policies died in the Senate, so California landlords may still decline pets; they just cannot collect extra deposits for the ones they accept.
- New York and Massachusetts similarly cap total deposits at one month's rent, leaving no headroom for add-on pet deposits once a full security deposit is collected.
- Virginia caps the total at two months' rent, which at least leaves room for both.
- Pennsylvania caps the total at two months' rent in the first lease year, dropping to one month's rent on renewal — a pet deposit that fit at signing can become an overcharge at renewal time if you are not watching.
If you operate in one of these states, price pet risk through pet rent instead of deposits. Monthly pet rent is income, not a deposit, so it sits outside the cap entirely.
Pet-specific caps: five states with their own numbers
A handful of states set a separate limit just for pet deposits, on top of (or alongside) the general security deposit:
- Colorado caps the pet deposit at $300, requires it to be refundable, and separately caps pet rent at $35 per month or 1.5 percent of monthly rent, whichever is greater. Stack a nonrefundable fee on top of the capped deposit and rent and you have exceeded what the statute allows.
- Alaska allows an additional pet deposit of up to one month's rent, but it must be accounted for separately from other deposits and may be applied only to pet-caused damage.
- Kansas allows an additional pet deposit of up to half a month's rent.
- Nebraska allows a pet deposit of up to one-quarter of a month's rent — on a $1,600 rental, that is $400.
- North Dakota caps a pet deposit at the greater of $2,500 or two months' rent.
- Hawaii and Delaware cap pet deposits at one month's rent, and both carve out assistance animals kept as a reasonable accommodation.
When in doubt, look up your state's current deposit statute before quoting numbers — caps change, and the penalty for exceeding them is typically returning the overcharge plus damages.
Assistance Animals Are Not Pets
None of the above applies to assistance animals — service animals and emotional support animals prescribed as a reasonable accommodation for a disability. Under federal fair housing law, an assistance animal is not a pet: you may not charge a pet deposit, pet fee, or pet rent for one, even if you operate a strict no-pets property. Breed and size restrictions do not apply to them either.
You can still hold the tenant responsible for actual damage the animal causes and deduct it from the regular security deposit, and you can require the animal to be under control and housebroken. What you cannot do is price-gate the accommodation upfront. A separate written assistance-animal addendum — covering behavior expectations, waste cleanup, and liability for damage — protects you far better than a fee you were never allowed to collect.
How to Book Each Charge
Here is where landlords quietly create tax problems. The IRS rules for rental deposits come from Publication 527, and they turn entirely on refundability — not on what you called the payment in the lease.
Refundable pet deposits are not income when received. They are a liability: money you hold for someone else. Record the receipt as a deposit liability (for example, Liabilities:Tenant-Deposits:Pet), not as rental income. If your state requires deposit escrow or interest-bearing accounts, hold pet deposits under the same rules as general deposits.
Retained deposits become income in the year you keep them. Whatever portion of the pet deposit you withhold for damage at move-out converts to rental income in that year. Move it from the liability account to rental income, and report it on Schedule E alongside rent. The classic error is treating a retained $400 pet deposit as "not rent" and omitting it — the IRS treats it as rent.
Pet fees and pet rent are income immediately. Because the tenant never gets them back, nonrefundable fees and monthly pet rent are rental income in the year received, reported on Schedule E. Record them in distinct income accounts — Income:Rent:Pet-Rent and Income:Fees:Pet-Fee — rather than lumping them into base rent. Separate accounts let you see what your pet policy actually earns, and they make it trivial to answer the question every landlord eventually asks: does pet rent cover pet damage?
Track pet damage costs separately, too. When you spend the retained deposit on carpet replacement or door refinishing, book the expense against a pet-specific subaccount. At year end you can compare pet revenue against pet costs per unit and per tenancy — the only honest way to decide whether to raise pet rent, tighten your policy, or drop deposits in favor of higher monthly charges.
One more timing trap: if your lease applies any deposit to the last month's rent, the IRS treats that amount as advance rent — taxable in the year you receive it, regardless of your accounting method. Keep deposits and prepaid rent in separate buckets from day one.
Mistakes That Cost Landlords Money
- Stacking a pet deposit on top of a maxed-out security deposit. In cap states, the combined total is what counts. Audit your move-in charges against the cap before quoting.
- Writing "nonrefundable deposit." A deposit is refundable. If you mean a fee, call it a fee — and only where your state allows nonrefundable fees.
- Charging pet fees for assistance animals. The surest way to turn a routine accommodation into a fair-housing complaint.
- Commingling the pet deposit. In Alaska it must be separately accounted for by statute; everywhere else, separate tracking is what lets you prove the money went to pet damage if the tenant disputes the deductions.
- Forgetting retained deposits at tax time. Withheld deposits are Schedule E income in the year retained. Reconcile your deposit liability accounts every December so nothing slips through.
- Skipping the pet addendum. Your lease should name each approved animal (species, breed, weight, photo), set the charges, require flea treatment and waste cleanup, require renters insurance with pet liability where you want it, and document the unit's pet-relevant condition at move-in with photos. The addendum is what makes your deductions defensible.
Write a Pet Policy That Pays
The landlords who do best with pets treat the pet policy as a small profit center with measured costs, not as a favor with fingers crossed. Set pet rent to cover your average pet-turnover cost with margin — if pet units cost you $600 more to turn and average an 18-month stay, $40 a month in pet rent about breaks even before the deposit does its work. Photograph everything at move-in and move-out. Require renters insurance naming you as an interested party. And revisit the numbers annually: pet rent that has not moved in five years while turnover costs doubled is a policy leaking money.
Done right, pet-friendly landlording is one of the cheapest vacancy-reducers available. Pet owners stay longer, pay reliably, and choose from a smaller pool of willing landlords — which means they choose you, if your price is fair and your paperwork is clean.
Keep Your Rental Books Clean From Day One
Pet deposits, pet rent, damage deductions, and retained-deposit income all flow through different accounts — and mixing them up is how landlords overpay taxes or underreport income. Beancount.io provides plain-text accounting that gives you complete transparency and control over your rental finances, with every deposit, fee, and deduction traceable in version-controlled records. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
