Rental income tax Malaysia: what you actually pay.

Is rental income taxable, and how is it taxed?

For most landlords, rental is investment income under Section 4(d) of the Income Tax Act. You simply collect rent, so the net amount is added to your total income for the year and taxed at the normal graduated rates, the same rates as your salary, from 0% up to 30%. There is no separate rental tax rate for residents.

You report it on Form BE (e-BE online), the same form most employees use, under statutory income from rents. If you also run a business it goes on Form B instead, but the rental rules below are identical. One exception: if you actively provide comprehensive services with the property (think a serviced apartment with staff and full maintenance), the letting becomes a business source under Section 4(a). Simply collecting rent, even on several units, is not a business.

What you can deduct from your rent

These are the allowable expenses you subtract from your gross rent (LHDN Public Ruling 12/2018, para 8.2). Each has to relate to the property that earns the rent:

• Loan interest on the loan used to buy the property (the interest, not the principal repayment)
• Assessment tax (cukai taksiran) and quit rent (cukai tanah)
• Fire insurance premium
• Repairs and maintenance that keep the property in its existing state: repainting, fixing the air-conditioner, plumbing, the monthly service charge and sinking fund for a strata unit
• Rent collection and renewal costs: the agent fee to renew or find a replacement tenant, and legal cost to enforce rent collection
• For a residential let, the cost of replacing furnishings (swapping out a worn sofa or air-conditioner, not kitting out the unit for the first time)

The golden rule: keep the records property by property, not all mixed together. When one unit's numbers get muddled with another's, that is where claims get lost.

What you cannot deduct (the part that trips people up)

The costs of getting your first tenant are not deductible (para 8.3): advertising to find them, legal fees and stamp duty for the first tenancy agreement, and the agent commission for the first letting. The law sees these as the cost of creating the income source, not the cost of running it. Once you are past the first tenant, into renewals, repairs and replacements, those ongoing costs become claimable.

Two more are never deductible: the price you paid for the property (that is capital), and renovations that upgrade it beyond its original state. A repair keeps things as they were; an improvement makes it better than before, such as an extension or a full kitchen rebuild. And timing matters: your rental only starts for tax on the date it is first rented out, so spending before that first tenant moves in is not claimable.

That RM12,800 net is what gets added to your income, not the full RM30,000. If you are already in the 19% band, claiming the RM17,200 of expenses saves you about RM3,268 in tax (RM17,200 x 19%). Declare the gross by mistake and you are paying tax on RM17,200 you never got to keep. Want to see your own number? Our free tax calculator runs the current rates.

More than one property? Watch the loss trap

If you own a few properties and none of them come with services, LHDN lets you group them as one rental source, so a loss on one unit can be set off against the rent from another in the same year. But here is the catch most people miss. If your rental makes a net loss overall for the year, that loss cannot be set off against your salary or business income, and it cannot be carried forward to next year (para 7.2). A rental loss simply disappears, so there is no point over-spending on repairs just to create one. This is different from a business loss, which is one reason the Form B vs Form BE distinction matters.

The 50% exemption everyone still quotes (it is gone)

You will still find blogs saying 50% of residential rental is exempt, up to RM2,000 a month. That was a temporary incentive for YA2018 to YA2020. It has expired. For YA2025 and YA2026 there is no blanket rental exemption, you are taxed on the net, full stop. Anyone quoting the 50% today is reading an old article.

What to do next

Keep each property's records in its own file, rent in and expenses out, with receipts kept for 7 years. Split your costs into getting the first tenant (not claimable) and running the let (claimable), which fixes most mistakes. Then when you file Form BE, enter the net figure under statutory income from rents, where the HK-4 working sheet shows the rent-minus-expenses maths. New to filing? The side income guide covers where rent sits alongside a salary.