Rental income tax in Malaysia: what a landlord must declare and can deduct

Rental income is taxable even if it feels like passive money

Rental income from a property you own is generally assessed as non-business income under Section 4(d) of the Income Tax Act, and it needs to be declared to LHDN regardless of how small the amount feels or how informal the tenancy is. A verbal agreement with a relative renting your spare unit does not exempt the income; the obligation to declare exists whether or not a formal tenancy agreement is in place, though the agreement matters for what you can deduct.

What you can actually deduct against rental income

The deductions LHDN generally allows against Section 4(d) rental income are direct costs of holding and maintaining the property as a rental: assessment tax, quit rent, fire insurance premiums, repair and maintenance costs, property or strata management fees, and the interest portion of your home loan repayment. The loan principal is not deductible; only the interest is.

Repairs and improvements are not treated the same way

A repair restores the property to its original condition: repainting a wall, fixing a leaking pipe, replacing a broken water heater. An improvement adds something new or upgrades what was already there, such as extending a room or installing a higher-spec kitchen. LHDN generally treats improvements differently from repairs, and they are not deductible the same way against rental income in the year incurred. This is where most landlords guess wrong, usually by assuming a big renovation bill counts the same way as a small repair invoice.

Keep the paperwork before you need it, not after

Every deduction claimed needs to be supported by a valid tenancy agreement and original receipts. If LHDN queries a deduction and you cannot produce the receipt or agreement, the deduction can be disallowed regardless of whether the expense was genuinely incurred. Keep a folder, physical or digital, for each rental property, and add receipts as they happen rather than trying to reconstruct a year of expenses at filing time.

When your situation is more than a single rental unit

If you own multiple rental properties, or your letting activity looks more like a business (active management, short-term letting at scale, or services beyond a basic tenancy), the classification can shift from non-business to business income, which changes what is deductible and how it is filed. Confirm your specific classification with LHDN or a tax agent rather than assume the straightforward Section 4(d) treatment above applies to a larger or more active operation.