Rental Income Tax in Malaysia: Deductible Expenses & Filing

Rental is usually a Section 4(d) source, taxed at your normal rates

Under the Income Tax Act 1967, letting out property is normally an investment source under Section 4(d), not a business. Net rent is added to your other income — salary, dividends, side income — and taxed at the same resident progressive brackets. There is no separate 'rental tax rate': if your salary already puts you in the 19% band, the first ringgit of net rent is taxed at 19%.

The exception is where the letting is run as a business under Section 4(a). LHDN treats it as a business source when you actively provide ancillary or support services — cleaning, security, maintenance staff, a reception desk, laundry — rather than simply handing over keys and collecting rent. That distinction matters a lot for short-term letting such as Airbnb, and it changes the tax treatment (capital allowances become available, and losses behave differently).

Non-residents are treated differently again: rental income of a non-resident individual is taxed at a flat 30% with no personal reliefs. Jointly owned property is split according to each owner's share, and each owner reports their own portion.

When the rental source starts — and why it matters

Your rental source commences on the date the property is first rented out, not the date you bought it or the date it was completed. Everything spent before that first tenancy is an 'initial expense' and is permanently non-deductible, even though it was clearly incurred to get the property let.

So the agent's commission for finding your first tenant, the legal fee for drafting that first tenancy agreement, the stamp duty on it, and advertising for that first tenant are all lost. Renew with the same tenant, or find a replacement tenant later, and the equivalent costs are deductible — because by then the source already exists. It is worth timing significant spending with this in mind.

What you can deduct

• Interest on the housing loan — the interest portion of your instalment only.
• Assessment rates (cukai pintu / cukai taksiran) paid to the local council.
• Quit rent (cukai tanah) paid to the state land office.
• Fire or houseowner insurance premiums on the property.
• Service charge, maintenance fee and sinking fund contributions for stratified property.
• Repairs and maintenance that restore the property to its original condition — repainting, fixing the water heater, replacing a broken air-conditioner with a like-for-like unit.
• Pest control, and the cost of collecting rent.
• Agent commission and legal fees for renewing a tenancy or securing a subsequent tenant.

What you cannot deduct

• The loan principal. Only the interest is deductible — this is the single most common error, and it can be tens of thousands of ringgit of wrongly claimed expense.
• The purchase price of the property, and the MOT stamp duty and legal fees on buying it. These are capital costs; they matter later for RPGT, not now.
• Capital improvements — an extension, an extra room, a full kitchen upgrade, or renovating beyond the original condition. Restoring is deductible; enhancing is not.
• All initial expenses incurred before the first letting (see above).
• Your own time and labour managing the property, and any income tax paid.
• Depreciation. Capital allowances are generally not available against a Section 4(d) letting — they belong to a business source.

Losses: the rule that surprises landlords

If deductible expenses exceed the rent for a property, you may set that loss against the rent from your other properties in the same grouping — LHDN permits properties to be grouped (commonly residential in one group and commercial in another) so the group is assessed as a single source.

What you cannot do is push a net Section 4(d) rental loss against your employment income, and you cannot carry it forward to a future year. It simply disappears. A negatively geared property therefore does not shelter your salary the way it does in some other countries — which is exactly why the treatment as a 4(a) business source, where losses can be carried forward, is worth understanding if your letting is genuinely service-heavy.

Worked example: a RM2,000/month condo

Gross rent is RM2,000 × 12 = RM24,000. Deductible expenses for the year: loan interest RM11,500, maintenance fee and sinking fund RM3,600, assessment RM800, quit rent RM120, fire insurance RM250, and RM900 to repair the water heater and repaint one room. Total deductions are RM17,170, so statutory rental income is RM6,830.

Note what is excluded. The full instalment might be RM1,600 a month (RM19,200 a year), but only the RM11,500 interest portion counts — the RM7,700 of principal is not an expense. And if you also spent RM6,000 building in a wardrobe and upgrading the kitchen, that is a capital improvement and stays out of the calculation.

That RM6,830 is then added to your other income. On a RM90,000 salary it sits in the 19% band, so it adds roughly RM1,300 to your tax bill. Add it to the 'other income' field in the calculator below to see the effect on your own numbers.

Reporting it, and one exemption that has lapsed

Rental goes in the statutory income from rents section of your return — Form BE if your only other income is employment, Form B if you also have a business source. Report the net figure and keep the supporting documents: tenancy agreements, bank statements showing rent received, the annual loan interest statement from your bank, council and land-office receipts, and repair invoices. LHDN can go back several years, and rental is a common audit target because the deduction side is so easy to overstate.

Ignore older articles promising a 50% exemption on residential rental income. That relief applied only to YA2018 through YA2020, required monthly rent of RM2,000 or less and a stamped tenancy agreement, and has since lapsed. There is no general residential rental exemption today.

Stamping the tenancy agreement is still worth doing on time — it is what makes the agreement enforceable, and the stamped agreement is also the cleanest evidence of your rental terms if LHDN queries the income.

Important caveats

This is a general explanation of how letting income is treated under the Income Tax Act 1967 and LHDN's public ruling on income from the letting of real property. It is planning guidance, not tax advice. The 4(a) versus 4(d) question in particular turns on the facts of your specific arrangement, and short-term or serviced letting can also bring licensing, tourism tax and service tax obligations that have nothing to do with income tax. If you own several properties, run short-stay accommodation, or are non-resident, get the position confirmed by a tax agent or LHDN before you file.