Can I deduct agent commission and TA fees in my first year of renting?
No. Agent commission, legal fees, and stamp duty paid to get the first tenant are initial expenses — LHDN treats them as the cost of creating the rental source, not of producing income from it, so they are not deductible against rental income in any year. The same fees for a renewal or a second-onwards tenant are deductible.
The trap is timing. A landlord pays the agent, the lawyer, and LHDN stamp duty in the same month the first tenant moves in, the first rental income arrives, and the natural instinct is to net the two. LHDN's Public Ruling No. 12/2018 draws the line at the cause: costs that bring the rental source into existence are capital in character, even if the bill lands in year one. This page covers ordinary residential letting taxed under Section 4(d); active, service-rich letting (cleaning, concierge, short-stay) may fall under Section 4(a) and needs a tax agent.
The law: what is deductible under Section 4(d)
For ordinary residential letting, LHDN PR 12/2018 allows a deduction for direct expenses wholly and exclusively incurred in producing the rental income — and expressly includes the cost of renewing a tenancy or changing tenant, including agent commission for a renewal or subsequent tenant. Getting the first tenant is treated separately as an initial expense, not a producing expense.
The deductible categories under Section 4(d) are fixed by LHDN and narrow:
| Direct expense category | Deductible? | Note for first-year landlords |
|---|---|---|
| Assessment and quit rent | Yes | Recurring property tax, deductible from the first year the unit earns rent |
| Interest on the loan to buy the property | Yes | Interest portion only; the principal repayment is never deductible |
| Fire insurance premium | Yes | Policy on the rental property |
| Rent-collection and rent-enforcement costs | Yes | Agent or legal costs to collect or enforce rent during the tenancy |
| Renewal or subsequent-tenant costs | Yes | Agent commission for a renewal or a second-onwards tenant is deductible |
| Ordinary repairs | Yes | Restore to existing state; upgrades and renovations are not repairs |
| Agent commission for the first letting | No | Initial expense — creates the income source |
| Legal fees and stamp duty for the first tenancy | No | Initial expense — part of setting up the rental source |
The dividing rule is the same one behind every entry in the table: a cost is deductible only if it produces income from a source that already exists. The first-letting costs build that source, so they sit on the capital side of the line regardless of the year the invoice is dated.
Step-by-step: how to classify each first-year cost
Sort every first-year bill into one of three buckets before you file: a deductible producing expense, a non-deductible initial expense, or a capital improvement. The trigger question for each line item is whether the source of rental income already existed when you paid it.
| Step | What you ask | Result | Example |
|---|---|---|---|
| 1 | Did the property already have a tenant when this cost arose? | If yes, likely a producing expense | Renewal commission for an existing tenant staying on |
| 2 | Is this a recurring operating cost of the unit? | If yes, deductible | Monthly assessment, loan interest, fire insurance |
| 3 | Was this paid to find or set up the very first tenancy? | If yes, initial expense — not deductible | First-letting agent fee, first TA legal fee, first stamp duty |
| 4 | Did the work improve the property beyond its existing state? | If yes, capital improvement — not deductible | New kitchen, extra bathroom, full renovation before listing |
| 5 | Did the work restore the property to its prior state? | If yes, ordinary repair — deductible | Fix a leaking pipe, replace a failed same-spec water heater |
Run every receipt through this ladder. The first three steps handle agent commission and TA fees; the last two handle the repairs question, covered in the are repairs tax deductible guide.
Who pays the TA fees: landlord, tenant, or agent
The party who physically pays does not change the tax treatment — what matters is whose rental income the cost is tied to, and whether it produced existing income or set up the first letting. If the tenant reimburses you for a fee you fronted, that reimbursement is added to your rental income, not netted off.
| Common arrangement | Who pays | Deductible for the landlord? |
|---|---|---|
| Landlord pays agent commission for the first tenant | Landlord | No — initial expense |
| Landlord pays agent commission for a renewal or new tenant after the first | Landlord | Yes — subsequent-tenant cost |
| Tenant pays agent commission directly to the agent (first let) | Tenant | Not the landlord's expense to claim |
| Landlord pays the lawyer and stamp duty for the first TA | Landlord | No — initial expense |
| Landlord pays legal and stamping cost for a renewal TA | Landlord | Yes — renewal cost |
| Tenant reimburses landlord for a TA fee | Tenant reimburses landlord | Add the reimbursement to rental income; do not net it |
The mechanics of stamping a tenancy on LHDN's MyTax portal (e-Duti Setem) are walked through in the how to stamp a tenancy agreement on MyTax guide, and a real cost breakdown of TA plus stamp duty sits in the TA and stamp duty cost breakdown example.
Penalties and risk: what happens if you claim it anyway
Claiming a first-letting cost as a deduction understates your net rental income, which understates your tax. LHDN can reopen an assessment, raise additional tax plus penalties, and the disallowed cost then has to be removed without any offset elsewhere — there is no second bucket it falls into.
The risk compounds in three ways:
- The disallowed deduction is removed, raising net rental income and the tax owed on it.
- A penalty can apply on the additional tax for the years the cost was wrongly claimed.
- If you are a non-resident landlord, the impact is sharper because net Malaysian rental income is taxed at a flat 30% from Year of Assessment 2020, with no personal reliefs — the 30% applies to the income after deductions, so an overstated deduction costs more in actual tax than it would for a resident on graduated rates.
A tax agent is the right call if your letting might be Section 4(a) rather than Section 4(d), or if a single cost genuinely mixes a deductible repair with a non-deductible improvement.
Worked example: first-year landlord at RM1,800 monthly rent
A landlord who lets a unit at RM1,800 a month and pays RM2,160 in first-letting agent commission plus RM400 in TA legal and stamping fees cannot deduct any of that RM2,560 against the year's rental income. Recurring costs — assessment, loan interest, fire insurance, repairs — are deductible; the first-letting fees are not.
| Line item | Amount (RM) | Deductible? |
|---|---|---|
| Gross annual rent (RM1,800 x 12) | 21,600 | This is the income |
| First-letting agent commission | 2,160 | No — initial expense |
| First TA legal fee + stamp duty | 400 | No — initial expense |
| Assessment + quit rent (annual) | 700 | Yes |
| Loan interest (annual) | 8,400 | Yes |
| Fire insurance | 250 | Yes |
| Ordinary repairs during the tenancy | 1,200 | Yes |
| Renewal agent commission (next year, same tenant) | 1,080 | Yes — when incurred |
In the first year the deductible items are the recurring four; the first-letting RM2,560 is excluded. The following year, if the tenant renews, the renewal commission becomes a deductible subsequent-tenant cost. Figures here are illustrative for the structure of the calculation; check the rental income deductible expenses breakdown and verify against the current LHDN Public Ruling for your own facts.
Run your own numbers through the calculator below — leave out first-letting costs, since they are not deductible.
Adjusted Rental Income Estimator
For non-business property rental assessed under paragraph 4(d) of the Income Tax Act 1967.
Enter gross rent received and eligible direct expenses for the same period.
First-tenant startup costs and capital improvements are not included. Source: LHDN Public Ruling 12/2018.
The SPEEDHOME operating angle: records that survive an audit
The landlord who loses a deduction usually loses it to a missing paper trail, not to a wrong rule. The same stamped tenancy agreement and transaction record a platform keeps for you proves both what you can deduct and, just as importantly, what you cannot — and the first-letting fees you do not claim stay documented as initial expenses so an auditor sees the choice was deliberate.
Three things make a first-year landlord's file audit-ready:
- A stamped tenancy agreement that dates the first letting and separates it from any renewal — this fixes which commission falls on which side of the initial-expense line.
- A receipt or invoice for every agent, legal, and stamping cost, labelled by tenancy and by whether it was a first let or a renewal.
- A reconciliation that adds any tenant reimbursement back into rental income rather than netting it against the fee.
This is where a managed landlord product earns its keep: instead of rebuilding the trail from a shoebox at year-end, the records exist from the day the tenancy started. For the full picture of how rental income is taxed — gross rent, net income, CP500 instalments, non-resident treatment, and SST scope — read the rental income tax guide, and see how the managed-landlord product handles record-keeping at the SPEEDHOME managed landlord product page.
A note on SST: letting of residential housing — terrace houses, apartments, condominiums, bungalows, serviced suites — is outside the scope of service tax, so a normal residential landlord does not charge SST on rent. Service tax applies to commercial and certain non-residential rental or leasing services, at 6% from 1 January 2026, and only once the provider exceeds the RM1.5 million taxable-turnover registration threshold for rental or leasing services. Verify the current scope with Customs before assuming it applies to your situation.
FAQ
Can I deduct the agent commission I paid to get my first tenant?
No. Agent commission for the first letting is an initial expense under LHDN PR 12/2018 — it creates the source of rental income rather than producing income from it. Commission for a renewal or a second-onwards tenant is deductible as a subsequent-tenant cost.
Are the legal fees to prepare my first tenancy agreement deductible?
No. The legal cost of preparing the first tenancy agreement is an initial expense, alongside the stamp duty on that first agreement. Legal fees for a renewal agreement fall on the deductible side as a renewal cost.
What if my tenant reimbursed me for the TA fee?
Add the reimbursement to your rental income. You cannot net it against the fee. The reimbursement increases the income declared; the fee itself remains non-deductible in the first letting because it is an initial expense.
Do non-resident landlords face different rules for these deductions?
The same PR 12/2018 expense rules apply — non-resident landlords can still deduct allowable expenses. The difference is the rate: a non-resident individual is taxed at a flat 30% on net Malaysian rental income from YA2020, with no personal reliefs, so an overstated deduction costs more in actual tax than it would for a resident on graduated rates.
Is stamp duty on the tenancy agreement ever deductible against rent?
Not for the first tenancy — stamp duty on the first letting is an initial expense. Stamp duty on a renewal agreement is a renewal cost and is deductible. The stamping process itself now runs through e-Duti Setem on LHDN's MyTax portal.
Can I claim the first-letting costs as a capital expense instead?
Initial expenses of a Section 4(d) passive letting are not deductible against rental income and do not automatically become a capital allowance. If your letting qualifies as Section 4(a) business income — active, service-rich letting — different rules may apply; a tax agent can assess whether any capital-allowance treatment is available for your setup.