What's the maximum deposit a contractor can charge in California?

For residential home-improvement contracts, California Business & Professions Code §7159 caps deposits at the lesser of 10% of contract price or $1,000. This applies to any work on a residence — remodeling, repair, adding, altering — even on multi-unit residential property. Special-order materials and specific mobilization exceptions can add to this but must be disclosed. Commercial contracts are not subject to this cap.

Do residential contractor deposit caps apply to commercial work?

No. State home-improvement statutes (the ones that cap residential deposits) apply to residential work only — typically owner-occupied single-family homes and small multi-unit residential. Commercial contracts are governed by general contract law, meaning parties can negotiate any deposit amount. On commercial new construction or tenant improvements, deposits of 10%–33% are common, often structured as mobilization payments rather than 'deposits.'

Can I charge more than the state cap if I buy special-order materials?

Most states with deposit caps have a special-materials exception. The contractor can collect the actual cost of special-order items (custom cabinetry, specific appliances, non-returnable materials) in addition to the statutory deposit, provided the items are disclosed and documented in the contract. The exception is narrow — only items specifically manufactured, ordered, or purchased for the project and typically not returnable.

Are deposits refundable before work starts?

Depends on your state's right-to-cancel rules. Most residential home-improvement contracts have a 3-business-day cancellation right under federal law (Truth in Lending / FTC cooling-off rule) when signed at the homeowner's residence. During that window, the full deposit must be refunded if the homeowner cancels. Some states extend this to 5 or 7 days. After the window closes, refundability is governed by the contract terms and general cancellation doctrine.

What is a mobilization payment and how is it different from a deposit?

Mobilization is an early project payment covering the contractor's costs to prepare to perform — permitting fees, submittal preparation, initial material purchases, equipment transport to site. On commercial work especially, the first pay application often includes a specific mobilization line for 2%–10% of contract value. It's conceptually distinct from a 'deposit' because it's earned as the preparation happens, not held as security.

Can I take a deposit and start work the same day?

Only after the right-to-cancel period expires (typically 3 business days in federal-law states, longer in some states). Starting work inside the cancellation window means if the homeowner cancels, you owe them not just the deposit but potentially the value of work already performed if you can't return the property to its prior state. Wait the full window out unless the homeowner signs a statutory waiver (allowed in emergencies in some states).

What happens if I charge more than the statutory deposit cap?

In most states that cap residential deposits, an over-cap deposit is a license-law violation and can trigger: (1) civil penalties and fines from the contractor licensing board; (2) the customer's right to void the contract and recover the full deposit; (3) in egregious cases, license suspension or revocation. The over-cap portion is generally unenforceable — you can't sue to keep money the statute says you couldn't collect in the first place.

Can I ask for progress payments before I start work as an alternative to a deposit?

Yes, in a sense. Structuring the contract so the first progress payment is due at a specific milestone — e.g., 'payment due when materials arrive on site' or 'payment due when permit is pulled' — effectively shifts some of the cash-collection timing without running afoul of deposit caps. The first actual progress payment is not a deposit and not subject to the cap; it's compensation for work and materials actually delivered.

How Much Can Contractors Legally Collect as a Deposit? (State-by-State 2026)

There is a big, permanent gap between what a contractor would prefer to collect up front and what state law lets them keep. For residential home-improvement work in most states, deposits are statutorily capped at a small fraction of the contract price. For commercial work, there is no cap, but the practical norms are different too.

Here's the 2026 landscape: the specific caps state-by-state, the exceptions that let you go higher on certain project costs, and the contract structures that let you improve cash flow without breaking the rules.

Why Deposit Caps Exist

Every state with contractor licensing laws has seen the same pattern: unlicensed or shady operators collect large deposits, then do shoddy work or disappear entirely. The homeowner is left with a hole in the backyard and no practical remedy.

Residential deposit caps are a legislative response. Cap the upfront exposure so that even if the contractor disappears, the homeowner has lost a manageable amount. Require the contractor to finance project mobilization from working capital, not from the customer's pre-payment.

The caps apply mostly to residential work because that's where unsophisticated customers are most common. Commercial developers and property owners negotiate contracts with their own attorneys and don't need statutory protection.

Residential Deposit Caps by State (2026)

This table is current as of early 2026. Always verify with your state's current contractor licensing law before relying on a specific number — statutes change, and some states recompute thresholds annually based on inflation.

| State | Residential Deposit Cap | |---|---| | California | Lesser of 10% of contract or $1,000 | | Maryland | 33.3% of contract price | | Massachusetts | One-third of contract price (plus documented special-order materials) | | Nevada | Greater of 10% of contract or $1,000 (certain trades; check NRS 624) | | New York | 33.3% of contract (NY Home Improvement Law) | | Oregon | 50% of contract on most residential work, subject to CCB rules | | Rhode Island | 25% of total contract or $1,500, whichever is less | | Virginia | 10% of contract on projects over $1,000 (RCC regulations) | | New Jersey | No statutory cap, but contract must spell out deposit + milestones (Home Improvement Practices Act) | | Washington | No statutory cap, but RCW 18.27 requires disclosure and right-to-cancel language | | Texas | No statutory cap on most residential work (but Deceptive Trade Practices Act applies to overreach) | | Florida | No statutory cap; best-practice limits of 10%–25% common | | Most other states | No hard statutory cap; common-law reasonableness and licensing board scrutiny apply |

Strict-Cap States

California is the archetype. Business & Professions Code §7159 caps the deposit on any residential home-improvement contract at the lesser of 10% of the contract price or $1,000. Exceed this, and:

The over-cap portion is unenforceable
The contractor can be cited and fined by the CSLB (Contractors State License Board)
License suspension is possible for repeat violations
The customer has a statutory right to recover the excess and potentially void the contract

The $1,000 figure has been stuck for decades despite inflation. On a $40,000 kitchen remodel, the legally collectible deposit is $1,000 — not $4,000, not $10,000.

Virginia has a similar 10% cap on projects over $1,000 enforced through the Board for Residential Contractors.

Moderate-Cap States

New York, Maryland, and Massachusetts allow up to one-third of contract price as deposit — significantly more generous than California but still capped. Massachusetts's rule (MGL 142A) explicitly allows the one-third plus reasonable documented costs for special-order or custom materials.

No-Cap States (Caveat Emptor)

Most states do not have an explicit residential deposit cap, but this does not mean unlimited deposits are safe. Three practical constraints usually apply:

The state's contractor licensing statute may require disclosure of deposit terms, cancellation rights, and dispute resolution in the written contract.
State Deceptive Trade Practices Acts can be invoked against contractors whose deposit demands look like fraud (collecting a large deposit with no capability to perform).
Common law unconscionability can void excessive deposit terms in residential consumer contracts.

Norms of 10%–33% are common even where no statute specifies.

Special-Order Materials Exception

Most capped-deposit states have a special-materials exception. The statutory language varies, but the idea is consistent: if the contractor must order custom or non-returnable materials before any other work, the customer can be charged for those materials beyond the regular deposit cap.

Elements typically required:

Materials must be specifically manufactured, ordered, or non-stock for the project
Materials must be non-returnable or non-transferable
The contract must disclose the specific items, costs, and expected delivery date
The customer's extra payment must be itemized separately from the deposit

Examples: custom cabinetry made to measure, specific-color-order countertops, name-brand appliances that must be ordered for delivery, custom-fabricated windows, specialty ceramic tile with long lead times.

Not qualifying: general 2x4 framing lumber, stock appliances from a local big box, standard paint colors, commonly-stocked fixtures.

If you're using this exception, document it carefully: invoice copies from the supplier, receipts, written confirmation of non-returnability. The special-materials budget isn't a deposit slush fund.

Federal Right-to-Cancel (FTC Cooling-Off)

Under the FTC's Cooling-Off Rule (16 CFR Part 429), consumers have 3 business days to cancel any residential home-improvement contract signed at the customer's home or at a temporary location (such as a sales meeting). Some states extend this — New York requires disclosure of this right in every home improvement contract.

During the cancellation window:

All deposits must be refunded within 10 days of cancellation
Any materials purchased specifically for the job must be returned if practical
Work performed during the window is at the contractor's risk — if cancelled, the contractor may have to restore the property to its prior condition at their own expense

The practical rule: don't start work until the 3-business-day window expires, unless:

The customer signs a statutory emergency waiver (allowed in some states for urgent repairs), OR
The contract was signed at the contractor's place of business (the rule applies to home/off-site sales primarily)

Structuring Contracts to Improve Cash Flow Without Violating Caps

If you're in a capped-deposit state, a few legal structures let you accelerate cash collection while staying compliant:

1. Milestone-Based Progress Payments

Rather than a big deposit, structure the contract so the first progress payment is due at a specific, documented milestone — permit pulled, materials delivered, demo complete. Progress payments for work actually performed are not deposits and aren't subject to the deposit cap.

Example structure on a $40,000 CA kitchen remodel (with $1,000 deposit cap):

Deposit at signing: $1,000 (capped)
Draw 1: $8,000 at permit pulled + materials ordered
Draw 2: $12,000 at demo + rough-ins complete
Draw 3: $12,000 at drywall + cabinets installed
Final: $7,000 at substantial completion

Cash-in-hand at the start of work: $9,000. Fully compliant with the deposit cap.

2. Special-Order Material Deposits (Properly Documented)

If you're ordering custom cabinetry at $18,000 with a 60-day lead time, you can typically collect the full $18,000 in advance under the special-materials exception, separate from your $1,000 deposit. The supplier invoice is the documentation.

3. "Mobilization" as a Line Item

On commercial work and in some residential contracts, the first payment is a "mobilization" payment for permitting, submittal preparation, and site setup. Listed as a distinct line in the schedule of values, this is compensation for specific preparatory work, not a generalized deposit.

4. Draw Schedules for Longer Projects

For projects over 60 days, a detailed draw schedule with weekly or bi-weekly progress payments keeps your AR aged to two weeks rather than two months. Progress billing is a cash-flow discipline separate from deposit structure.

Commercial Work: No Cap, But Customary Norms

On commercial contracts, deposits are pure contract negotiation — both parties have counsel, both are sophisticated, no statutory cap applies.

Typical commercial deposit structures in 2026:

Nothing at signing, mobilization draw of 5%–10% at contract start — common on AIA-form contracts
10% deposit at signing — common on smaller commercial (under $250k)
25%–50% "mobilization" on long-lead projects with heavy upfront material purchases — specialty fabrication, tenant improvements requiring custom elements
Nothing at signing, first pay application 30 days after work starts — occasional on very large commercial where owner has significant leverage

Performance and payment bonds (see our surety bond guide) are the typical risk allocation on commercial — the owner gets the security of bonds instead of relying on a deposit to mitigate risk.

Red Flags That Will Trigger a Complaint

A few deposit-related practices regularly get contractors into trouble with licensing boards:

Taking a deposit and disappearing for weeks — even if you return, the lag triggers complaints
Demanding cash deposits (no check, no credit card) — looks like a scam even when it isn't
Commingling deposits with operating funds on residential work where the state requires a trust account (New York, New Jersey have specific rules)
Refusing to return a deposit after a contracted cancellation period
Collecting a deposit before the contract is signed by both parties

The "it was just a verbal agreement" defense doesn't work in most states — several require written residential contracts above a certain threshold (California: any home-improvement work over $500).

The Short Version

On residential work, know your state's cap and don't exceed it. Structure contracts so the first real progress payment arrives quickly after work starts, using legitimate milestones to keep your AR manageable. Document special-order materials thoroughly if you're using that exception.

On commercial work, negotiate the deposit you actually need, tied to mobilization costs. Remember that bonds exist precisely so owners don't have to over-collateralize with deposits.

For small shops, the cleanest approach: low deposit to book the job, aggressive but defensible milestone draws early, and the discipline to never let AR age past 30 days. Cash flow is won or lost in the first two weeks of every project, not in the final invoice.