How a rental holding deposit works: when to take one and when to refund it
A holding deposit is money an approved applicant pays to take a unit off the market until the lease is signed. It is not the security deposit and not the application fee. Put the terms in writing before you take it: how much, how long you hold the unit, whether it is credited to the first month or the deposit, and when it is refunded. Some states set rules: Oregon, for example, lets you collect it only after approval and requires a written statement of the refund terms (ORS 90.297).
What a holding deposit is, and what it is not
| Payment | What it is for | When it is paid |
|---|---|---|
| Application or screening fee | Covers the cost of checking the applicant | With the application |
| Holding deposit | Keeps the unit off the market for a short time | After approval, before the lease is signed |
| Security deposit | Covers damage or unpaid rent at the end of the tenancy | At or before move in, under the lease |
| First month rent | Rent for the first period | At or before move in |
Mixing them up causes most disputes. A tenant who paid a holding deposit expects the unit or the money back; an owner who thinks it was a nonrefundable fee will not agree.
An example of a state rule: Oregon
ORS 90.297 is Oregon's holding deposit rule. Under it:
- The landlord may charge the deposit only after approving the application and before the rental agreement is signed.
- Before taking it, the landlord gives a written statement describing the rent and fees, the terms of the agreement the applicant would sign and the conditions for refunding or keeping the deposit.
- If the applicant fails to sign the agreement, the landlord may keep the deposit, unless the applicant rejected the agreement because of material habitability defects.
- If the agreement is not signed because of the landlord's failure, or because of the applicant's habitability based rejection, the landlord must return the deposit within five business days.
Other states handle this differently. In California, Civil Code 1950.5(b) defines security to include a charge imposed at the start of a tenancy to cover the cost of processing a new tenant, and subdivision (c) limits security to one month's rent, with a two month exception for small landlords. Ask a local attorney whether a holding deposit falls inside that definition where you rent.
How to take one safely
- Approve the application first. Do not take money from someone you have not decided to rent to.
- Give a written holding agreement with the unit, the rent, the move in date, the amount held and the date the hold ends.
- State exactly when you keep the deposit (for example, if the applicant decides not to sign) and when you return it (for example, if you rent to someone else).
- Say what happens to the money if the lease is signed: applied to the first month's rent or to the security deposit.
- Give a receipt and stop showing the unit.
- Return or apply the money by the date in the agreement.
Example a made-up owner approves an applicant for a $1,600 unit and takes a $400 holding deposit with a written agreement that holds the unit for 10 days. The applicant signs the lease on day 8, and the $400 is credited to the first month, so the applicant owes $1,200 more at move in. Had the applicant walked away on day 5 for no reason tied to the unit, the owner could keep the $400 under the agreement, where state law allows it.
How to record it and report it
IRS Publication 527 says advance rent is any amount you receive before the period it covers, and it is income in the year you get it. It also says not to include a security deposit in income when you receive it if you plan to return it. A holding deposit credited to the first month's rent becomes advance rent, and one you keep because the applicant backed out is income you kept. Ask your tax preparer how to treat each case.
In your books, record the money as a liability from the day you receive it, and move it to rent or to a deposit held only when the lease is signed.
How DoorKeeping fits
The holding deposit is paid to your own bank, never to DoorKeeping, and you match it there. Each property has its own books with its own deposits held, so the money stays apart from the rent. The holding agreement is a document you send for e-signature after your one tap approval.
Sources
- Oregon Revised Statutes chapter 90, section 90.297 (holding deposits), read Oct 30, 2026
- California Civil Code section 1950.5, security deposits, read Oct 30, 2026
- IRS, Publication 527, Residential Rental Property (advance rent, security deposits), read Oct 30, 2026
Questions
- Is a holding deposit refundable?
- It depends on the agreement and your state. In Oregon, ORS 90.297 requires the landlord to return it within five business days if the agreement is not signed because of the landlord's failure or the applicant's habitability based rejection.
- Is a holding deposit the same as a security deposit?
- No. A holding deposit keeps the unit off the market before the lease is signed. A security deposit covers damage or unpaid rent at the end of the tenancy.
- Should I take a holding deposit before approval?
- No. In Oregon it is allowed only after approval, and taking money before you decide to rent to someone leads to disputes.
- Is a holding deposit taxable income?
- Publication 527 treats advance rent as income when received. Money you plan to return is not income. Confirm the treatment with your tax preparer.