Can mortgage interest be deducted from Malaysian rental income?
Yes. For ordinary residential letting under Section 4(d), loan interest on a buy-to-let loan can be deducted from rental income in Malaysia. Mortgage principal repayment is not deductible, and first-letting costs are treated separately.
Under Section 4(d), LHDN lets you deduct the direct expenses you incur wholly and exclusively in producing the rental income. The named list covers: assessment and quit rent, interest on the loan taken to buy the property, fire insurance premium, rent-collection and rent-enforcement costs, the cost of renewing a tenancy or changing tenant (including agent commission for a renewal or subsequent tenant), and repairs to keep the property in its existing state.
SPEEDHOME landlord data from filed Section 4(d) claims shows interest deduction is the single largest deductible line on a typical Malaysian rental — well above fire insurance and quit rent on a per-property basis. Landlords who mis-classify principal as expense overpay tax by thousands each year, because principal is added back to rental profit in the BE form.
The practical point: your bank instalment has two parts. Interest may be deductible against rental income. Principal repayment is capital repayment of your loan and should not be treated as a rental expense.
How should landlords separate interest from principal?
Use the annual loan statement or bank interest breakdown. Do not use the full monthly instalment as the deductible amount.
Most mortgage payments combine principal and interest. If your monthly instalment is RM1,800, that does not mean RM1,800 is deductible. You need the interest component for the relevant year.
A worked example: on a RM500,000 loan at 4.5% over 30 years, year-1 interest is roughly RM22,000 of an instalment totalling around RM2,533. Only that interest portion — not the full instalment — feeds the Section 4(d) deduction. As the loan amortises, the interest share each year falls and the principal share rises, so the deductible amount is front-loaded.
| Payment item | Rental tax treatment | Why it matters |
|---|---|---|
| Loan interest | Deductible under Section 4(d) | Direct cost of producing rent |
| Principal repayment | Not deductible as rental expense | Repays borrowed capital |
| Late payment charge | Not covered by Section 4(d) | Not a direct cost of producing rent |
| Mortgage insurance / MRTT premium | Not covered by Section 4(d) | Treated as personal life/capital cover, not a property expense |
| Fire insurance premium | Deductible under Section 4(d) | Direct property-related cost |
| Assessment and quit rent | Deductible under Section 4(d) | Direct property-related cost |
For the wider checklist, use the Malaysian landlord tax deductions guide.
What if the loan is joint or was refinanced?
Only your borrowing-share interest is deductible. If the loan is in joint names or was restructured, keep a written declaration of each party's share.
Joint loans are common for Malaysian landlords — husband-and-wife, business partners, parent-and-child. Section 4(d) lets you deduct interest wholly and exclusively incurred in producing rental income; it does not let you deduct a co-borrower's share unless that share is borne by you. In practice this means each co-borrower claims only their portion, and the annual loan statement should be cross-referenced with a written share allocation (kept on file in case of audit).
The same trap appears after refinancing. When you refinance a buy-to-let loan, the new facility often blends the old outstanding balance with extra cash-out, a renovation top-up, or a consolidation of personal debt. Only the interest that traces back to the original buy-to-let borrowing remains clearly deductible; interest on the cash-out portion needs separate analysis. Keep the refinancing letter of offer and the original loan statements so the deductible share is defensible.
What if the property is active serviced rental?
Classification matters. Passive residential letting is normally Section 4(d); comprehensive active services can shift the source to Section 4(a) business income.
Rental income is taxed under Section 4(a) of the Income Tax Act 1967 — a business source — only when maintenance and support services are provided comprehensively and actively. Otherwise it is taxed under Section 4(d) as a non-business (investment) source. The classification decides what you can deduct and whether losses and capital allowances are available. Public Ruling 12/2018 is LHDN's published guide on this classification line.
A rule-of-thumb threshold: if you provide three or more core services on a daily or rolling basis (for example cleaning, linen change, reception, on-site maintenance), LHDN practice is to treat the source as Section 4(a) business income. Long-term residential landlords should avoid copying advice written for hotels, serviced accommodation, or active short-stay operators. Read the broader rental income tax Malaysia guide before applying a deduction position.
Which first-letting costs are not deductible?
Do not bundle first-letting costs into the mortgage-interest answer. LHDN treats those as initial expenses — costs that create the income source rather than produce income from it.
Costs of getting the FIRST tenant are initial expenses and are NOT deductible against rental income. LHDN names these specifically: advertising cost, legal cost to prepare the first rental agreement, stamp duty, and agent commission — all for the first letting. This applies whether the rental is taxed under Section 4(a) or 4(d). Keep first-letting costs out of this calculation — LHDN separates them from the Section 4(d) recurring-expense framework.
For repairs specifically, compare this with are repairs tax deductible in Malaysia.
Records to keep for LHDN if audited
Keep seven years of evidence — annual loan interest statement, tenancy agreement, rent receipts, insurance and quit-rent bills, repair invoices, agent commission receipts, and the refinancing letter of offer. The burden of proof sits with you, not LHDN.
If LHDN queries your Section 4(d) deduction, the burden of proof sits with you. Keep the following for at least seven years from the year of assessment:
- Annual loan interest statement from the bank (the document showing the interest paid in that year, not the monthly instalment schedule).
- Bank interest breakdown or EA form if the loan is joint or has multiple borrowers.
- Tenancy agreement(s) for the period.
- Rent receipts or rental ledger (SPEEDHOME landlord-account records keep a dated ledger by tenant that maps directly to this requirement).
- Fire insurance premium receipt.
- Assessment and quit rent bills.
- Repair invoices tied to the period.
- Agent commission receipts for tenant renewal or replacement.
- Refinancing letter of offer (if the buy-to-let loan was restructured).
SPEEDHOME landlord-account records keep a dated rent ledger and annual tenant history for each property, which makes the LHDN audit trail easier to compile at filing time.
e-Invoice: from 2026, landlords whose annual turnover crosses the RM500,000 threshold move onto the MyInvois e-Invoice regime. Once that trail is on, the dated invoices themselves become part of the audit record LHDN reviews, so landlords approaching that line should keep the e-Invoice reference numbers with each invoice copy.
CP500: your Section 4(d) interest deduction is computed against the same rental income that drives your CP500 instalment schedule. The year-1 interest figure above (~RM22,000) is also the single biggest item that lowers the rental-profit estimate you file by 31 March — claim it before you estimate the next CP500 payment, not at year-end BE filing.
Use the calculator below with your loan interest and other allowable deductions to find your chargeable rental income.
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.
FAQ
Can I deduct my full housing loan instalment?
No. Only the interest portion is deductible. Your principal repayment isn't a rental expense (fire insurance is deductible separately under Section 4(d)) — it repays your own borrowed capital.
Can I deduct interest before I get the first tenant?
Generally no for the first-tenant period. First-tenant advertising, first agreement legal cost, stamp duty, and first-tenant agent commission are initial expenses and not deductible.
Is there a special landlord relief for mortgage payments?
No — there is no landlord-specific tax relief in Malaysia, and mortgage payments don't qualify for a personal relief either. As a resident, you claim the Section 4(d) interest deduction against your rental income, then apply your ordinary personal reliefs (yourself, spouse, children, EPF, medical, etc.) to your total chargeable income as normal. Non-residents get no personal reliefs at all.
Does the rule change if I run active serviced rental?
Yes — it can shift the classification. If maintenance and support services are comprehensive and active, Section 4(a) business-income treatment may apply, which changes the deduction framework and unlocks capital allowances.
What records should I keep?
Keep annual loan interest statements, tenancy agreements, rent receipts, insurance receipts, assessment and quit rent bills, repair invoices, agent commission receipts, and any refinancing letter of offer. SPEEDHOME landlord-account records keep a dated ledger by tenant that maps directly to this requirement.