What is the Texas Construction Trust Fund Act?

It is the chapter of the Property Code that treats construction payments as trust funds. A contractor who receives them is a trustee, a homeowner on a residential job is a beneficiary, and the funds are meant to pay for the work rather than be diverted.

Is it a crime for a Texas contractor to misuse my deposit?

It can be. A trustee who misapplies trust funds of $500 or more commits a Class A misdemeanor, and a felony of the third degree if it was done with intent to defraud.

How Much Deposit Can a Contractor Ask For in Texas?

Texas sets no deposit percentage cap, but construction payments are trust funds, the contractor holding them is a trustee, and misapplying them can be a crime.

Texas does not cap a construction deposit by percentage. What it does instead is treat the money as a trust. Under the Construction Trust Fund Act, construction payments made to a contractor to improve real property are trust funds,¹ the contractor who receives them is a trustee of those funds,² and a homeowner on a residential job is a beneficiary of the trust.³ A trustee who misapplies the money can face criminal penalties. This page explains the trust-fund framework, because in Texas that is what stands behind a deposit.

Your deposit is a trust fund, and the contractor is a trustee

The core of the Texas rule is that the money is not simply the contractor's to use freely. Construction payments are trust funds under the chapter if they are made to a contractor or subcontractor under a contract to improve specific real property in the state.¹ A contractor who receives or controls those funds is a trustee of the trust funds.²

On a residential job the homeowner is protected directly: a property owner is a beneficiary of trust funds in connection with a residential construction contract.³ That is what turns a deposit dispute from an ordinary contract disagreement into a question about how a trustee handled trust money.

Misapplying the money can be a crime

The trust framework has teeth. A trustee who misapplies trust funds of $500 or more in violation of the chapter commits a Class A misdemeanor, and if the misapplication is done with intent to defraud, it is a felony of the third degree.⁴ Misapplying means using the money for something other than paying the beneficiaries the trust is meant to protect.

Because Texas does not cap the deposit, the practical protection is the trust itself: money paid for your job is supposed to go to your job. Keeping the deposit proportionate, paying against progress, and documenting what was paid are what make the trust-fund protections usable if a contractor diverts the money.

Sources

In Texas, construction payments are trust funds if they are made to a contractor or subcontractor under a contract to improve specific real property in the state.
Tex. Prop. Code § 162.001Texas Property Code § 162.001, Construction Payments and Loan Receipts as Trust FundsVerified August 3, 2026a b
A contractor who receives trust funds or who has control or direction of trust funds is a trustee of those funds.
Tex. Prop. Code § 162.002Texas Property Code § 162.002, Contractors as TrusteesVerified August 3, 2026a b
A property owner is a beneficiary of trust funds in connection with a residential construction contract.
Tex. Prop. Code § 162.003Texas Property Code § 162.003, Beneficiaries of Trust FundsVerified August 3, 2026a b
A trustee who misapplies trust funds amounting to $500 or more in violation of the chapter commits a Class A misdemeanor, and a felony of the third degree if the misapplication is done with intent to defraud.
Tex. Prop. Code § 162.032Texas Property Code § 162.032, PenaltiesVerified August 3, 2026↑

Frequently asked questions

Does Texas limit how much deposit a contractor can ask for?: Texas does not set a percentage cap on the deposit. Instead, construction payments are trust funds, the contractor holding them is a trustee, and misapplying the money can be a criminal offense.
What is the Texas Construction Trust Fund Act?: It is the chapter of the Property Code that treats construction payments as trust funds. A contractor who receives them is a trustee, a homeowner on a residential job is a beneficiary, and the funds are meant to pay for the work rather than be diverted.
Is it a crime for a Texas contractor to misuse my deposit?: It can be. A trustee who misapplies trust funds of $500 or more commits a Class A misdemeanor, and a felony of the third degree if it was done with intent to defraud.

This page is general information about state law, not legal advice. Laws change, and how they apply depends on the facts of your situation.