What Expenses Can I Deduct From Rental Income? (2026)

What expenses can I deduct from rental income?

You can deduct expenses that are wholly and exclusively incurred in producing the rent: interest on the loan taken to buy the property, assessment and quit rent, fire insurance premium, rent-collection and enforcement costs, tenancy-renewal costs (including agent commission for a renewal or subsequent tenant), and ordinary repairs that keep the property in its existing state. Mortgage principal, renovations, and first-letting costs are not deductible. The full allowable list and the line-drawing rules live below, anchored to LHDN Public Ruling 12/2018.

For ordinary long-term residential letting, the income is taxed under Section 4(d) of the Income Tax Act 1967 as a non-business (investment) source. You are taxed on net rent (gross rent minus allowable expenses), not gross rent, so the quality of your expense records directly sets your tax bill. The SPEEDHOME-only angle: landlords who keep a timestamped platform record of every rent payment, repair invoice and tenancy renewal lose far less to a paper-trail gap at filing time than landlords reconstructing a year from a shoebox. The full declaration workflow, the 4(d) vs 4(a) test, and the CP500 instalment scheme are covered in our main rental income tax Malaysia guide.

The law on rental deductions: Section 4(d) and Public Ruling 12/2018

For ordinary passive residential letting taxed under Section 4(d), LHDN Public Ruling 12/2018 sets the test: an expense is deductible only if it is "wholly and exclusively" incurred in producing the rental income. That phrase is doing all the work — it is the line between an allowable revenue expense and a capital or personal cost that fails. The rule and the reasoning matter more than memorising a list.

The deduction works as follows: you total gross annual rent, subtract the allowable direct expenses, and the net figure is what is added to your other income and taxed at your normal progressive rate (or, for a non-resident, at the flat rate covered later). The "wholly and exclusively" test is why mortgage principal and renovations fail — they are capital outlays that improve your asset, not costs of producing this year's rent. It is also why first-letting costs fail: they create the income source rather than produce income from it. The same rule is the reason renewal-period costs (a second tenant, a new tenancy) can qualify where the identical cost for the first letting does not.

One classification point that decides everything else: if you provide maintenance and support services comprehensively and actively — for example serviced short-stay management with cleaning, concierge and staff — the income may be taxed under Section 4(a) as a business source instead, which changes what you can deduct and whether losses and capital allowances are available. The test is the active service, not the number of properties you own. Passive long-term residential letting stays in 4(d). If your activity looks more like a business than an investment, confirm the classification with a licensed tax agent before filing.

What you CAN deduct from rental income

These are the direct expenses LHDN allows against Section 4(d) residential rental income: assessment and quit rent; interest on the loan taken to buy the property; fire insurance premium; rent-collection and rent-enforcement costs; tenancy-renewal costs (including agent commission for a renewal or subsequent tenant); and ordinary repairs to keep the property in its existing state. Each one meets the "wholly and exclusively" test.

The interest line is the one most landlords get right in principle but wrong in detail: it is the interest portion of the mortgage instalment that is deductible, not the principal repayment. The principal is you buying back equity in your own asset — a capital outlay, not an expense of producing rent. Your annual bank statement or loan amortisation schedule is the evidence; keep it with your tax file.

The repairs line is the other common trip point. A repair that restores something to its existing state (fix a leak, replace a like-for-like broken fixture) is deductible. An improvement (upgrade a basic unit to premium fittings, extend the kitchen) is capital and not deductible against rent. Keep repair invoices specific — "replaced damaged water heater, same model" is a repair; "installed new air-conditioner where there was none" reads as an improvement.

What you CANNOT deduct from rental income

These costs fail the "wholly and exclusively" test and are not deductible against rental income: your mortgage principal repayment, capital improvements and renovations, and the costs of getting the first tenant (advertising, the first tenancy's legal and stamp-duty costs, and agent commission for the first letting). Spending money on the property does not by itself make the spend deductible.

The first-letting rule is the one that catches landlords who assume "advertising is deductible." It is not, for the first letting — LHDN treats the costs that establish the income source as preliminary, not productive. The same costs for a renewal or a later tenant flip to deductible, because by then the source already exists and you are sustaining it. If you are unsure whether a cost is initial or sustaining in your facts, confirm with a tax agent before claiming it.

Repairs vs capital improvements: the line that decides your deduction

A repair restores the property to its existing state and is deductible; a capital improvement enhances the asset and is not deductible against rent. The distinction is about what the spend achieves, not its size — a small spend can be capital if it adds something that was not there before.

Evidence is what makes the deduction survive an LHDN query. A dated invoice that describes the work in repair language ("replaced damaged ceiling fan, same spec") is far stronger than a generic "renovation works" receipt that reads as capital. The same move-in and move-out condition record that supports a deposit-deduction claim against an outgoing tenant also supports a repair deduction at tax time — one documented workflow serves both purposes, which is why landlords on a managed platform keep more of their legitimate deductions intact.

Worked example: net rental income after deductions

Net taxable rental income is gross annual rent minus total allowable deductions. Here is an illustrative worked example using realistic residential figures; the structure matters, not the specific numbers — verify against your own records and the current LHDN Public Ruling.

The net figure of RM10,450 is added to your other income and taxed at your normal progressive resident rate. Notice what is not in the deduction column: there is no mortgage principal, no renovation cost, and no first-tenant advertising — because each of those would fail the test. The interest line alone (RM8,400) is doing most of the work in this example, which is why separating interest from principal on your loan statement is the single most valuable record-keeping habit for a landlord. Numbers here are for illustration; your allowable deduction depends on your actual documented expenses.

Non-resident landlords: deductions apply, but at a flat 30%

A non-resident individual landlord is taxed at a flat 30% on net Malaysian rental income (with effect from Year of Assessment 2020), but allowable rental expenses are still deductible — the 30% applies to the income after deductions, not the gross rent. Non-residents get no personal reliefs, rebates, or the graduated resident rates.

This is the point where the deduction list above matters most. Because non-residents cannot use personal reliefs or the progressive bands, every ringgit of legitimate deduction directly reduces the income taxed at 30%. The same Section 4(d) expense list applies; the difference is the rate and the absence of reliefs. A resident landlord and a non-resident landlord with identical rent and identical expenses will claim the same deductions but pay very different tax. If you are unsure of your residency status or how a partial-year non-residence affects the calculation, confirm with LHDN or a licensed tax agent before filing.

Is SST or e-Invoice something a residential landlord has to deal with?

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/leasing services, at 6% from 1 January 2026, and only once the provider crosses the RM1.5 million taxable-turnover registration threshold.

In plain terms: if you are renting out a normal home to a tenant, SST on the rent is not your problem. The threshold and the commercial scope mean a casual residential landlord stays out of the SST regime entirely. Treat this as a current-source area — the SST scope has been expanding — and re-confirm the residential exclusion against the current Customs guide before any rate or threshold assumption is load-bearing in your filing. E-Invoice obligations are a separate track keyed to your annual income: individual landlords below the RM500,000 threshold are not yet required to issue e-Invoices, while those in the RM500,000–RM1 million band are brought in from 1 July 2026, and business tenants self-bill the rent they pay. The full e-Invoice timeline and CP500 instalment detail sit in the main rental income tax Malaysia guide.

Record-keeping: the SPEEDHOME-only angle

Landlords lose legitimate deductions to a paper-trail gap, not to LHDN disallowing a valid claim. Keep every rent receipt, loan-interest statement, repair invoice and tenancy-renewal document, for at least seven years, in a structure that ties each expense to the property it produced income from.

This is the operator insight the editorial competitors cannot make. A landlord reconstructing a year of repairs from memory and a shoebox of receipts will drop the small deductible items — the assessment receipt, the one-off repair invoice, the renewal commission — because they were never filed together. A landlord whose rent, tenancy and condition records sit in one timestamped platform trail has each deductible event already documented and dated. If you want that record-keeping solved end to end rather than self-built, the managed landlord plan at SPEEDHOME keeps the tenancy, payment and condition trail in one place, so the deductions are provable at filing time rather than reconstructed.

FAQ

Can I deduct the whole mortgage payment, or just the interest?

Only the interest portion is deductible. The principal repayment is a capital outlay — you are buying equity in your own asset — and is not an expense of producing the rent. Use your loan amortisation schedule to split each instalment into interest and principal, and keep the annual statement on file.

Is renovation or upgrading work deductible?

No. Capital improvements and renovations that enhance the asset are not deductible against rental income. Only repairs that restore the property to its existing state (like-for-like) qualify. An invoice that reads "replaced damaged unit, same spec" is a repair; one that reads "upgraded to premium fittings" is capital.

Can I deduct the agent commission and advertising for my first tenant?

No. Costs of getting the first tenant — advertising, the first tenancy's legal and stamp-duty costs, and agent commission for the first letting — are initial expenses that create the income source, not produce income from it, so they are not deductible under either 4(a) or 4(d). The identical costs for a renewal or a subsequent tenant are deductible.

Do I pay tax on the rent if my total income is small?

Rental income is added to your other income and taxed at the progressive resident rate; there is no special landlord relief, and no threshold below which rent is exempt. The ordinary personal reliefs apply to your total income in the normal way. Confirm your specific position against the current LHDN tables before filing.

I am a non-resident landlord — can I still claim these deductions?

Yes. Allowable rental expenses are deductible for non-residents too; the 30% flat rate (YA2020 onwards) applies to net income after deductions, not gross rent. The difference is that non-residents get no personal reliefs or rebates and do not use the graduated resident bands, so each deduction saves tax at the full 30% rate.

Do I need to charge SST on the rent?

No, for normal residential letting. Letting of residential housing is outside the scope of service tax. Service tax applies to commercial and certain non-residential rental/leasing services, at 6% from 1 January 2026, and only once the provider crosses the RM1.5 million taxable-turnover threshold. Re-confirm the residential exclusion against the current Customs guide before relying on it.