How do roommates handle the security deposit when one moves out?

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Usually the incoming roommate pays the departing roommate for their share of the deposit, and the landlord keeps holding the full amount until everyone leaves. Before money changes hands, walk through the departing roommate's room and shared areas together and agree on any damage they are responsible for. Most landlords return the deposit only at the end of the tenancy, after the final inspection, not each time a roommate changes. That leaves the roommates to settle up among themselves. Check your records for how much each person originally paid. Before the departing roommate leaves, walk through their room and the shared spaces. Take dated photos. Agree on deductions for any damage they caused, beyond normal wear and tear. Have the new roommate pay the departing one their share, minus deductions, on move-in day. Write a short signed note recording who paid what, and tell the landlord so their records match. Some landlords will do a partial inspection and refund when someone leaves, or require the new roommate to pay the landlord directly. Ask how yours handles it before anyone moves. The risk is damage no one notices until the final move-out. If a problem shows up later that clearly dates from the old roommate, you would need to ask them for it, which is why dated photos and a written handover matter. Deposit rules and deadlines vary by state, covered in leases and deposits.

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