Is last month's rent the same as a security deposit, and who pays if rent goes up?
Legally they are often treated alike: California, Maryland and Oregon count prepaid last month's rent as part of the security deposit and its cap. Whether the tenant owes the difference after a rent increase depends on the state; Oregon says yes unless the written lease says otherwise. Track the two amounts apart in your books either way.
Two different jobs
A security deposit protects you against unpaid rent and damage, and what is left goes back to the tenant at the end. Prepaid last month's rent is rent paid early for one specific month. In daily use they look the same (money collected at move-in and held for years), which is why several states fold them together for the limits that matter most.
How six states treat it
| State | Treated as part of the deposit? | Other rules | Statute |
|---|---|---|---|
| California | Yes. "Security" includes any advance payment of rent | Exception: advance payment of six months' rent or more on a lease of six months or more | Civil Code 1950.5 |
| Maryland | Yes. "Security deposit" includes last month's rent paid in advance | One-month cap per unit; receipt, account and interest rules apply | Real Property 8-203 |
| Oregon | Yes. "Security deposit includes any last month's rent deposit" | Must be applied to the last month when a termination notice is given, the parties agree to end, or a fixed term ends | ORS 90.300 |
| Massachusetts | No. It is a separate allowed item | Same rate as the first month; receipt at payment; interest each year at 5% or the lesser rate the bank paid | c. 186, section 15B |
| New York | The statute caps "deposit or advance" at one month's rent | Read the wording with your attorney before collecting both | GOL 7-108 |
| Washington | Separate item | Tenant may pay it in installments with the deposit | RCW 59.18.610 |
If rent goes up before the last month
Oregon answers this directly. ORS 90.300 says a last month's rent deposit does not limit the rent charged unless a written rental agreement says it does, so the tenant owes the difference. The same section says the tenant cannot make you apply it to any other month unless you both agree, and any unused part is refunded under the deposit rules.
Example a made-up Oregon tenant paid $1,400 as last month's rent at move-in. Three years later rent is $1,533. When the tenant gives notice, the $1,400 covers most of the final month and the tenant pays the other $133. Had the lease said the prepaid amount covers the whole last month, the tenant would owe nothing more.
Massachusetts requires last month's rent to be "calculated at the same rate as the first month" when collected, and says nothing in that section about later increases. In states without a rule, the lease decides, so write it down: say whether the prepaid amount is a fixed dollar credit or covers the full final month.
Decision guide
- If your state counts prepaid rent inside the deposit cap (California and Maryland), then collecting both a full deposit and last month's rent can push you over the cap. Add them before you set either amount. In Oregon, the deposit rules on refunds and accounting apply to it.
- If you are in Massachusetts and take last month's rent, then give the receipt the statute lists when you collect it, and pay or credit the interest every year of the tenancy.
- If a tenant says "keep my deposit as last month's rent", then remember the deposit is your only cover for damage. You can agree, but you are not required to, and you lose that cover.
- If you are in Washington and the tenant asks in writing, then you must let them pay last month's rent in installments along with the deposit.
Example a made-up tenant with a $1,500 deposit skips the final $1,500 rent, saying "use the deposit." At move-out there is $600 of damage beyond normal wear. The deposit covers the rent, and the owner is left to collect $600 from someone who has already moved.
Keep them apart in the books
Even where the law lumps them together for the cap, the accounting differs. A refundable deposit is a liability, money you hold for the tenant. Prepaid rent is different for tax: IRS Publication 527 says to include advance rent in income in the year you receive it, whatever accounting method you use, and that an amount called a security deposit but meant as the final month's rent is advance rent. Our post on advance rent covers the details. Your tax preparer decides the final treatment; your records should simply show each amount on its own line with the date received.
The DoorKeeping way
Each property in DoorKeeping has its own record of deposits held, and prepaid rent shows as its own line in the unit's ledger, so the two never blur. When a tenant gives notice, ask your AI app for the unit's ledger to see what is prepaid, what is held as deposit and what the final month will owe. DoorKeeping gives no legal or tax advice.
Sources
- California Civil Code section 1950.5, read Oct 30, 2026
- Maryland Real Property section 8-203, read Oct 30, 2026
- Oregon Revised Statutes chapter 90 (ORS 90.300), read Oct 30, 2026
- Massachusetts General Laws c. 186, section 15B, read Oct 30, 2026
- New York General Obligations Law section 7-108, read Oct 30, 2026
- RCW 59.18.610, Installments, read Oct 30, 2026
- IRS Publication 527, Residential Rental Property (advance rent, security deposits), read Oct 30, 2026
Questions
- Does last month's rent count as a security deposit?
- In some states, yes. California, Maryland and Oregon count it as part of the deposit, so it falls under the deposit cap and rules. Massachusetts treats it as a separate item.
- If rent goes up, does the tenant owe more for the last month?
- In Oregon, yes, unless a written rental agreement says the prepaid amount limits the rent. Elsewhere the lease usually decides, so state it plainly.
- Can a tenant use the security deposit as last month's rent?
- Only if you agree. The deposit is meant for damage and defaults, and applying it to rent leaves you with nothing for damage found at move-out.