Landlord Rental Income Deductions in Malaysia (2026)

What expenses can a landlord deduct from rental income in Malaysia?

For ordinary residential letting under Section 4(d), LHDN lets you deduct direct expenses wholly and exclusively incurred in producing the rent: assessment and quit rent, interest on the loan used to buy the property, fire insurance premium, rent-collection and enforcement costs, the cost of renewing a tenancy or changing tenant (including renewal commission), and repairs that keep the property in its existing state. You cannot deduct capital improvements, your mortgage principal, or first-letting costs.

The whole deductibility question turns on one test from LHDN Public Ruling No. 12/2018: was the cost incurred in producing the rental income, or in creating the income source? Produce, and it is deductible; create, and it is not. A landlord who keeps that distinction straight files clean. Most lost deductions are not lost to LHDN — they are lost to a missing invoice. The SPEEDHOME landlord workflow keeps the receipts a tax agent asks for later in one place, which is the cheapest way to protect every ringgit you are entitled to offset.

The law: what LHDN Public Ruling 12/2018 actually allows

LHDN Public Ruling No. 12/2018 ("Income from Letting of Real Property") is the governing text. For Section 4(d) passive letting, paragraph 8.2 allows a deduction for direct expenses wholly and exclusively incurred in producing the rental income, and paragraph 8.6 allows interest on the loan taken to acquire the property. Everything deductible flows from those two paragraphs.

The ruling draws a hard line between direct expenses (deductible) and initial or capital expenses (not deductible). Direct expenses are the recurring costs of running the letting. Initial expenses are the costs of setting it up in the first place — advertising for the first tenant, the legal cost of the first tenancy agreement, the stamp duty on it, and the agent commission for the first letting. Capital expenses are improvements that make the property better than it was, not merely keep it where it is.

This is why two landlords with identical rent can file very different tax bills: one kept the invoices that match paragraph 8.2, the other did not.

Deductible vs not deductible — the full table

The fastest way to get a deduction right is to classify the spend before you file. The table below maps the common landlord costs in Malaysia to their treatment under PR 12/2018, so you can see at a glance what reduces your net rental income and what does not.

First-letting costs are not deductible against rent because they create the income source rather than produce income from it. Renewal and subsequent-tenant costs are different: the source already exists, so the cost of keeping it running is deductible.

Step-by-step: how to work out your deductible expenses

Build your deduction from the rent outward, not from your bank statement inward. Start with gross rent, subtract only the direct expenses the table above marks "Yes", arrive at net rental income, and keep one folder per property per year. That sequence is what protects you at assessment.

The figure at step 7 is what you add to your other income and declare on your tax form. It is also the figure a tax agent will reconstruct if you are ever reviewed — so the file you built in steps 1–6 is your defence.

Who can deduct what — eligibility

Deductibility depends on who you are, how the property is held, and how the letting is run. Residents, non-residents, joint owners and active short-stay operators are not treated the same, and the wrong frame quietly costs money.

A non-resident landlord does not lose the right to deduct expenses — the 30% is levied on net, not gross rental income. That distinction alone can change the tax bill meaningfully, yet it is the one most often misstated in casual guides. If you are unsure whether your letting is passive (Section 4(d)) or active (Section 4(a)), the test is whether maintenance and support services are provided comprehensively and actively; when in doubt, confirm with a licensed tax agent.

Penalties and risk: what happens when deductions are wrong

Two failures cost landlords money: claiming something non-deductible (LHDN disallows it, plus penalty and interest on the shortfall) and forgetting to claim something deductible (you simply overpay, silently). The first is punished; the second is just lost money you never get back.

The greater exposure for most small landlords is not a wrong claim — it is a right claim without a receipt. A deduction disallowed for want of evidence feels identical to a deduction never made. LHDN can go back through prior years of assessment, and the burden of showing the expense was incurred falls on the taxpayer. This is why the evidence column in the table above is not optional: the invoice and the dated photo are the deduction.

Where rental income also falls under the CP500 instalment scheme, under-estimating the year's tax triggers its own penalty on top. For YA2026 LHDN granted a transition period waiving the penalty (not the tax) for individuals with non-employment income such as rent — but that is a one-year grace, not a permanent exemption. Keep current with the LHDN notice each year rather than assuming the waiver continues.

Worked example: gross rent to net rental income

A worked example makes the rule concrete. The figures below are illustrative only — your own numbers come from your rent ledger and receipts — but the structure is what every landlord's calculation should look like.

Notice what is not in the deductions column: the mortgage principal, the renovation that upgraded the kitchen, and the first-letting advertising and stamp duty. A landlord who mistakenly deducts those overstates the deductions and understates the tax; one who simply forgets the loan interest or the renewal commission understates the deductions and overpays. The RM9,550 net figure is then added to other income and taxed at the applicable rate for the individual's circumstances.

Example for illustration only; verify against the current LHDN Public Ruling and your specific facts before filing.

Why the common shortcuts backfire

The two shortcuts that most often backfire are deducting the whole mortgage instalment (principal is not deductible) and deducting first-letting costs (advertising, first TA legal and stamp duty, first-tenant commission are all initial expenses). Both look reasonable in a spreadsheet and both fail the PR 12/2018 test.

The mortgage-instinct trap is the bigger one. A monthly instalment blends interest and principal; only the interest portion is deductible. Your bank can provide an annual interest statement that splits the two, and that statement — not the instalment figure — is what belongs in your file.

The first-letting trap is subtler because renewal costs are deductible, which tempts landlords to treat the first letting the same way. They are not the same under PR 12/2018. The first tenant creates the income source; the second and subsequent tenants sustain it. That is the entire logic, and it is why the table separates "first tenant" and "renewal / subsequent tenant" into different rows.

Landlords who lose a deduction do not usually lose it to LHDN — they lose it to their own paper trail.

Does a residential landlord charge SST on rent?

No. Letting of residential housing — terrace houses, apartments, condominiums, bungalows and 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 and leasing services, at 6% from 1 January 2026, and only once the provider exceeds the RM1.5 million taxable-turnover registration threshold for rental/leasing services.

This means the typical landlord collecting rent from a residential tenant has no SST obligation on that rent. The position is time-sensitive — SST scope is expanding — so confirm the residential exclusion still holds at the time you file, and treat any commercial or non-residential letting as a separate question for a tax agent.

The lawful path and the SPEEDHOME landlord layer

The lawful path for a landlord is simple to state and hard to keep up: declare net rental income honestly, deduct only what PR 12/2018 allows, and keep the evidence for every ringgit you offset. SPEEDHOME's role is to make the evidence the easy part rather than the hard part.

The same records that protect a tax deduction also protect a deposit deduction at the end of a tenancy: the move-in condition report, the dated repair messages, the handover photos. A landlord who has those in one place files cleaner tax and settles end-of-tenancy disputes faster. That dual-use document insight is platform-only — no portal or calculator site links the two workflows.

If record-keeping is the part that defeats you each year, the SPEEDHOME landlord service keeps the tenancy documents, rent collection trail and repair evidence in one place, so the file a tax agent asks for already exists. It does not replace a tax agent; it removes the reason most landlords under-claim. For the broader filing picture — which form, which deadline, e-Invoice phasing — the full landlord rental tax guide covers it, and the repair vs capital improvement deduction guide goes deeper on the repair-or-improve line.

FAQ

Can I deduct my monthly mortgage instalment against rental income? Only the interest portion, not the principal. PR 12/2018 para 8.6 allows interest on the loan taken to acquire the property; principal repayment is a return of capital, not an expense. Ask your bank for an annual interest statement that splits the two.

Is the agent commission deductible? It depends on which tenant. Commission for the first letting is an initial expense and is NOT deductible. Commission for a renewal or a subsequent tenant is deductible as the cost of renewing the tenancy or changing tenant under PR 12/2018 para 8.2.

Can I deduct the cost of renovating the kitchen or bathroom? No. Renovations and capital improvements that make the property better than its existing state are capital expenses, not deductible against rent. Repairs that merely restore the property to its existing state — fixing a leaking pipe, replacing a worn water heater like-for-like — are deductible. Keep renovation invoices for your cost base, not your deduction.

Are first-letting advertising and the first tenancy agreement stamp duty deductible? No. Advertising for the first tenant, the legal cost of the first tenancy agreement, and the stamp duty on that first agreement are all initial expenses under PR 12/2018 para 8.3, because they create the income source rather than produce income from it.

How is a non-resident landlord taxed on Malaysian rental income? A non-resident individual landlord is taxed at a flat 30% on net Malaysian rental income from YA2020, with no personal reliefs or rebates. Allowable expenses are still deductible — the 30% applies to income after deductions, not to gross rent. Confirm the current rate with LHDN or a tax agent before filing.

Do I need to charge SST on the rent I collect from a residential tenant? No. Letting of residential housing is outside the scope of service tax, so a normal residential landlord does not charge SST on residential rent. Service tax applies to commercial and certain non-residential rental and leasing services. SST scope is expanding, so verify the residential exclusion is still current at the time you file.