Most Malaysian landlords overpay their tax. Not because the rates are too high, but because they do not claim deductions they are legally entitled to. A landlord earning RM3,000/month in gross rent who claims zero deductions pays tax on RM36,000/year. The same landlord who properly claims loan interest, maintenance fees, insurance, and depreciation pays tax on RM18,000 or less. Same property, same rent, half the taxable income.
This guide lists every deductible expense, every non-deductible item, and works through a real example showing how deductions transform your tax bill.
The Legal Framework
Rental income is taxed under Section 4(d) of the Income Tax Act 1967 — income from rent, royalties, or premiums (Income Tax Act 1967). Deductible expenses are governed by Section 33(1) — outgoings and expenses wholly and exclusively incurred in the production of income.
Important distinction: If your rental income is passive (Section 4(d)), only direct expenses incurred in producing the income are deductible. If LHDN classifies your rental as business income under Section 4(a) — because you provide comprehensive maintenance and support services — broader deductions (including indirect expenses) are allowed under Section 33(1). Most individual landlords fall under Section 4(d).
The key phrase is "wholly and exclusively incurred in the production of income." If an expense directly relates to earning rental income from a specific property, it is deductible. If it is personal, capital in nature, or unrelated to income production, it is not.
For Malaysian tax residents, net rental income (after deductions) is added to your other income and taxed at progressive rates. For non-residents, net rental income is taxed at a flat 30%.
Either way, deductions reduce the taxable base. Every ringgit deducted saves you between 1% and 30% in tax depending on your marginal rate.
Complete List of Deductible Expenses
1. Interest on Loan / Financing Cost
The single largest deduction for most landlords.
You can deduct the interest portion (or profit rate portion for Islamic financing) of your mortgage payment. Not the principal repayment — only the interest/profit component.
In the early years of a 30-year mortgage, interest represents 60-75% of your monthly payment. On an RM450,000 loan at 4.5% over 30 years, monthly payment is approximately RM2,280. In year one, roughly RM1,688 per month is interest. That is RM20,250/year in deductible interest.
| Loan Amount (RM) | Rate | Monthly Interest (Year 1) (RM) | Annual Deduction (RM) |
|---|---|---|---|
| 300,000 | 4.0% | 1,000 | 12,000 |
| 400,000 | 4.5% | 1,500 | 18,000 |
| 450,000 | 4.5% | 1,688 | 20,250 |
| 600,000 | 4.5% | 2,250 | 27,000 |
| 720,000 | 4.5% | 2,700 | 32,400 |
Your bank provides an annual statement showing principal and interest breakdowns. Use this for your tax return.
2. Assessment Rate (Cukai Taksiran)
Paid semi-annually to the local council (DBKL for KL, MBPJ for Petaling Jaya, MPSP for Penang, etc.). Fully deductible.
Typical amounts: RM400-1,200 per half-year depending on the property's annual value and the council's rate.
3. Quit Rent (Cukai Tanah)
Paid annually to the state land office. Fully deductible.
Typical amounts: RM50-500 per year for residential property. Landed properties pay more than strata units.
4. Fire Insurance / Takaful Premium
The mandatory fire insurance premium paid annually is fully deductible. This includes the basic fire policy and any extended coverage riders (flood, windstorm, etc.).
Typical amounts: RM200-600 per year.
5. Maintenance Fee
For strata properties (condos, apartments, serviced apartments), the monthly maintenance charge paid to the management corporation is fully deductible.
Typical amounts: RM150-800 per month depending on the development. Annual deduction: RM1,800-9,600.
6. Sinking Fund Contribution
The sinking fund charge — typically 10% of the maintenance fee — is deductible. This funds major repairs and capital expenditure for the building.
Typical amounts: RM15-80 per month.
7. Repair and Maintenance Costs
Costs to repair the property and maintain its existing condition are deductible. This includes:
- Plumbing repairs
- Electrical repairs
- Repainting (to restore, not upgrade)
- Replacing broken fixtures with similar quality
- Pest control
- Cleaning between tenants
- Air-conditioning servicing
The critical distinction: repairs are deductible, improvements are not. Fixing a leaking pipe is a repair. Upgrading a standard sink to a designer basin is an improvement (capital expenditure).
8. Property Agent Commission
Fees paid to a property agent for finding tenants are deductible. This is typically one month's rent as a one-off letting fee.
If your agent charges an ongoing management fee, that is also deductible (see below).
9. Legal Fees for Tenancy Agreement
The cost of preparing and stamping the tenancy agreement is deductible. This includes the lawyer's drafting fee and the stamp duty on the tenancy agreement itself.
Typical amounts: RM300-800 for a standard two-year tenancy agreement.
10. Property Management Fees
If you engage a property management company to handle tenant relations, rent collection, and maintenance coordination, their fee is fully deductible.
Typical rates: 8-12% of monthly rent. On RM3,000/month rent, that is RM240-360/month or RM2,880-4,320/year.
11. Advertising and Marketing Costs
Fees to list the property on platforms like iProperty, PropertyGuru, Mudah, or social media advertising for tenant-finding. Deductible.
Typical amounts: RM0-500 per listing cycle.
12. Furniture and Fittings Depreciation (Capital Allowance)
This is the deduction most landlords miss entirely.
You cannot deduct the lump-sum purchase cost of furniture, air-conditioners, water heaters, or other fittings in the year you buy them. They are capital expenditure. However, you can claim capital allowance — a form of depreciation — over their useful life.
Note: Capital allowance is only available if your rental income is classified as business income under Section 4(a). If your rental is passive non-business income under Section 4(d), capital allowances may not be claimable. Consult a tax advisor on whether your rental activity qualifies. If you provide comprehensive services (cleaning, maintenance, etc.), it is more likely to be classified as business income.
Capital allowance rates for common items:
| Asset | Initial Allowance | Annual Allowance | Total Write-Off Period |
|---|---|---|---|
| Furniture (beds, tables, sofas) | 20% | 10% | ~8 years |
| Air-conditioners | 20% | 10% | ~8 years |
| Kitchen appliances (fridge, oven) | 20% | 10% | ~8 years |
| Water heater | 20% | 10% | ~8 years |
| Curtains, blinds | 20% | 10% | ~8 years |
| Electrical fittings | 20% | 10% | ~8 years |
| Computer/electronic equipment | 20% | 20% | ~4 years |
How it works: You buy RM15,000 worth of furniture for your rental unit. In year 1, you claim 20% initial allowance (RM3,000) + 10% annual allowance (RM1,500) = RM4,500 deduction. In year 2 onward, you claim 10% annual allowance (RM1,500) until the asset is fully written off.
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What Is NOT Deductible
Just as important as knowing what you can claim is knowing what you cannot.
| Expense | Deductible? | Reason |
|---|---|---|
| MRTA / MRTT premium | No | Capital expenditure, not revenue |
| Loan principal repayment | No | Capital repayment, not expense |
| Renovation costs (improvements) | No | Capital expenditure — but capital allowance may apply |
| Downpayment | No | Capital cost of acquiring asset |
| Stamp duty (MOT and loan) | No | Acquisition cost, not recurring expense |
| Legal fees for SPA / loan agreement | No | Acquisition cost |
| Personal travel to inspect property | No | Not wholly and exclusively for income production |
| Meals and entertainment for tenants | No | Personal expense |
| Income tax itself | No | Tax is not a deductible expense |
| Penalty payments (late assessment, fines) | No | Not incurred for income production |
The Repair vs Improvement Grey Zone
This is the most contested area in rental property tax deductions. LHDN applies the test: does the expense restore the property to its original condition, or does it improve the property beyond its original state?
| Expense | Classification | Deductible? |
|---|---|---|
| Repainting walls (same quality) | Repair | Yes |
| Replacing broken window | Repair | Yes |
| Fixing leaking roof | Repair | Yes |
| Replacing old toilet with same standard | Repair | Yes |
| Upgrading kitchen cabinets to higher spec | Improvement | No (capital allowance) |
| Adding a new room partition | Improvement | No (capital allowance) |
| Installing new air-conditioning (first time) | Improvement | No (capital allowance) |
| Replacing broken air-con with equivalent | Repair | Yes |
| Renovating bathroom (full makeover) | Improvement | No (capital allowance) |
When in doubt, keep receipts and document the purpose. "Replaced broken air-con unit (same model)" is defensible as repair. "Installed premium air-con system" is clearly improvement.
Worked Example: RM3,000/Month Rental
Let us walk through a real scenario. You own a condo in Petaling Jaya. Purchase price RM500,000. Loan RM450,000 at 4.5% over 30 years. Rented out at RM3,000/month with basic furnishing provided.
Gross Rental Income
RM3,000 x 12 months = RM36,000/year
Allowable Deductions
| Deduction | Annual Amount (RM) | Source |
|---|---|---|
| Loan interest | 20,250 | Bank statement (Year 1 interest) |
| Maintenance fee | 3,600 | RM300/month x 12 |
| Sinking fund | 360 | RM30/month x 12 |
| Assessment rate | 1,800 | RM900 x 2 semi-annual payments |
| Quit rent | 100 | State land office receipt |
| Fire insurance | 250 | Annual premium |
| Furniture depreciation | 4,500 | RM15,000 furnishing at 30% Year 1 |
| Agent letting fee | 3,000 | One month rent (one-time, prorated) |
| Tenancy agreement legal fees | 500 | Lawyer's invoice |
| Minor repairs | 800 | Receipts for plumbing, electrical |
| Total deductions | 35,160 |
Taxable Rental Income
RM36,000 - RM35,160 = RM840/year
On RM840 of taxable rental income, a resident taxpayer in the 25% marginal bracket pays approximately RM210 in additional tax. Compare that to RM9,000 in tax on RM36,000 gross (at the same 25% rate) if zero deductions were claimed.
Tax savings from proper deductions: RM8,790.
Key takeaway: In the early years of a mortgage, loan interest alone can wipe out most of your taxable rental income. Combined with maintenance fees, assessment, and furniture depreciation, many Malaysian landlords have near-zero taxable rental income for the first 5-8 years. This is legal and by design.
How It Changes Over Time
Loan interest decreases as you pay down the principal. Furniture depreciation runs out after 8-10 years. Your taxable rental income will increase over time even if rent stays flat.
| Year | Loan Interest (RM) | Furniture Depreciation (RM) | Other Deductions (RM) | Total Deductions (RM) | Taxable Rental (RM) |
|---|---|---|---|---|---|
| 1 | 20,250 | 4,500 | 10,410 | 35,160 | 840 |
| 3 | 19,500 | 1,500 | 10,410 | 31,410 | 4,590 |
| 5 | 18,600 | 1,500 | 10,410 | 30,510 | 5,490 |
| 10 | 15,800 | 0 | 10,410 | 26,210 | 9,790 |
| 15 | 12,000 | 0 | 10,410 | 22,410 | 13,590 |
| 20 | 7,200 | 0 | 10,410 | 17,610 | 18,390 |
By year 20, your taxable rental income is RM18,390 — still only 51% of gross rent. Loan interest remains a substantial deduction for most of the loan tenure.
Tax Filing Process
Step 1: Collect Documents
For each rental property, maintain a file with:
- Bank annual statement (showing interest vs principal split)
- Maintenance fee receipts or JMB statement
- Assessment rate receipts (local council)
- Quit rent receipt (state land office)
- Insurance premium receipts
- All repair/maintenance invoices with descriptions
- Agent commission receipt
- Tenancy agreement (showing rent amount and tenure)
- Furniture purchase receipts (for capital allowance)
Step 2: Calculate Net Rental Income
Gross rent minus allowable deductions = net rental income. Do this per property if you own multiple units.
Step 3: File in Form BE (Resident) or Form M (Non-Resident)
Declare rental income under Section 4(d). Resident taxpayers with rental income should file Form B (not Form BE, which is for employment income only). Non-resident taxpayers file Form M and pay 30% flat on net rental income (LHDN — Non-Resident).
Step 4: Keep Records for 7 Years
LHDN can audit your returns for up to 7 years. Keep all supporting documents. From YA 2024, LHDN mandates electronic submission of income tax return forms via the MyTax portal.
Multiple Properties: Ring-Fencing Rules
An important rule: rental expenses from one property cannot be used to create a loss that offsets your employment or business income. If your rental expenses exceed your rental income (creating a rental loss), the loss can only be carried forward against future rental income from the same source.
However, if you own multiple rental properties, LHDN allows you to aggregate rental income and expenses across all properties under Section 4(d). A loss from Property A can offset income from Property B within the same tax year.
| Property | Gross Rent (RM) | Deductions (RM) | Net (RM) |
|---|---|---|---|
| Property A | 24,000 | 30,000 | -6,000 |
| Property B | 36,000 | 20,000 | +16,000 |
| Aggregate | 60,000 | 50,000 | +10,000 |
Taxable rental income: RM10,000 (not RM16,000). The RM6,000 loss from Property A offsets Property B's income.
Strategies to Maximize Deductions
1. Furnish the Property
A RM15,000 furnishing investment creates RM4,500 in deductions in year one and RM1,500/year for the next 7 years. Total deduction over the life of the furniture: RM15,000 — the full cost, just spread over time. Meanwhile, furnished units command higher rent.
2. Time Your Repairs
If you need to repaint or repair, do it in the same tax year as a high-income period. Repairs are deductible in the year incurred.
3. Keep Every Receipt
The RM80 you paid a plumber. The RM150 for pest control. The RM200 for a broken water heater element. These small amounts add up to RM500-2,000/year in additional deductions.
4. Separate Interest Clearly
If you refinanced and took out extra cash for non-rental purposes, only the interest on the portion used for the rental property is deductible. Keep financing clean — one loan per property, used solely for property acquisition.
5. Engage a Property Manager (If It Makes Sense)
The 8-12% management fee is fully deductible. For a property generating RM3,000/month rent, a property manager costs RM240-360/month (RM2,880-4,320/year) — all deductible. If you are in the 25% tax bracket, the tax saving on the management fee alone is RM720-1,080/year.
Sources
- Income Tax Act 1967 (Act 53) — Sections 4(d) and 33(1)
- LHDN — Individual Tax Rates
- LHDN — Non-Resident Tax
- LHDN — MyTax Portal
For the full picture on how rental income is taxed, read our rental income tax guide. For details on maintenance and sinking fund deductions, see our maintenance fee guide. For quit rent and assessment specifics, check our quit rent and assessment guide. And to calculate how deductions affect your net cashflow, use the rental income tax calculator.