Malaysia Rental Income Tax Guide 2026: How to Declare to LHDN, Deductible Expenses, and Resident vs Non-Resident Rules

A property in Malaysia that generates monthly rental payments is earning taxable income — but that is where the simplicity ends. The tax treatment of rental income depends on whether you are a resident or non-resident, whether the property is residential or commercial, whether you rent the whole unit or just a room, and which expenses you can lawfully deduct before arriving at the taxable amount.

Many Malaysian landlords either do not declare rental income at all — assuming, incorrectly, that LHDN never checks — or declare the gross rental received without deducting the expenses they are legally entitled to, overpaying tax by thousands of ringgit per year.

LHDN has progressively strengthened its property income data-matching. Stamp duty records from property purchases, tenancy agreement stamping records, and bank transaction data from rental deposits all feed into the tax compliance system. Undeclared rental income is among the easier gaps for LHDN to identify.

This guide covers the complete tax treatment of Malaysian rental income, from calculation to deduction to declaration. To see how rental income affects your overall tax position, use the DuitTools PCB calculator — enter your combined employment and rental income to estimate your monthly tax instalment.

Is Rental Income Really Taxable?

Yes. Rental income is classified as investment income under the Income Tax Act 1967 and is taxable at your marginal income tax rate. It is not employment income, not business income, and not subject to a separate flat rate.

Rental income is reported on Form BE (if you are an employee whose only non-employment income is rental) or Form B (if you also have business income from self-employment). Most employed landlords with one or two rental properties file Form BE and declare the rental income in the dedicated rental income section.

The filing threshold

If your total annual income — employment income plus rental income net of allowable deductions — exceeds the filing threshold (RM34,000 after EPF deductions), you must file a tax return and declare the rental income. If your total income is below the threshold, there is no filing obligation, though voluntarily filing may be prudent to maintain a clean tax record.

Non-resident landlords

A non-resident landlord (a Malaysian citizen or foreign national who is in Malaysia for fewer than 182 days in a calendar year) is taxed differently on rental income:

• Non-resident individual: Rental income is taxed at a flat 25% on the gross rental income, with no deductions for expenses. The tenant or property agent is required to withhold this 25% and remit it directly to LHDN.
• Resident individual: Rental income is taxed at the progressive income tax rates (0-30%) on net rental income after deducting allowable expenses. This is almost always more favourable than the non-resident flat rate, particularly for landlords in the lower tax brackets.

A Malaysian landlord living overseas who rents out a property in Malaysia is typically a non-resident for tax purposes and faces the 25% flat withholding unless they structure the rental through a Malaysian resident agent and apply for resident treatment.

How to Calculate Your Taxable Rental Income

The taxable amount is net rental income, not gross rental received. The formula:

Gross annual rental received (including any deposit forfeited)
- Allowable deductible expenses
= Net rental income → added to your other income and taxed at your marginal rate

Gross rental income includes

• Monthly rental payments
• Advance rental payments that relate to the assessment year (even if received in a different year)
• Deposits forfeited (e.g., tenant breaks the lease and forfeits a one-month deposit — this is taxable rental income in the year forfeited)
• Service charges and maintenance fees paid by the tenant on your behalf (if the tenancy agreement states the tenant pays these, they are not your income; if you pay them and the tenant reimburses you, the reimbursement offsets your expense)

Gross rental income excludes

• Refundable deposits held in trust (unless and until forfeited)
• Utility payments collected from the tenant that are passed through to the utility provider at cost

Allowable Deductible Expenses: What You Can Offset

HMRC in the UK has a detailed list, and LHDN's framework is similar in principle. The following expenses are deductible against rental income:

Mandatory property costs (fully deductible)

• Quit rent (cukai tanah) — annual payment to the land office
• Assessment rates (cukai pintu/cukai taksiran) — semi-annual payment to the local council
• Fire insurance premium for the rented property
• Property management fees — if you engage a property agent or management company to manage the tenancy
• Strata/ maintenance fees — monthly service charges for condominiums and apartments

Financing costs (partially deductible)

• Mortgage interest on the loan used to purchase the rented property. Only the interest portion of the monthly instalment is deductible — the principal repayment is not.
• Loan arrangement fees — legal and bank fees associated with the mortgage, amortised over the loan period

Maintenance and repairs

• Repairs to maintain the property in its existing state — fixing a leaking roof, repainting walls, replacing broken door handles, repairing a burst pipe
• Routine maintenance — air-conditioner servicing, plumbing maintenance, electrical repairs

Critical distinction: Repairs that maintain the property in its existing state are deductible. Improvements that upgrade the property beyond its original condition — installing a new air-conditioner where there was none before, adding a kitchen extension, upgrading from tile to marble flooring — are capital expenditure and are not deductible against rental income. They are added to the property's acquisition cost for capital gains tax purposes when the property is eventually sold.

Other deductible costs

• Tenancy agreement stamp duty — the stamping fee on the tenancy agreement
• Legal fees for tenancy matters — preparing the tenancy agreement, evicting a non-paying tenant
• Advertising costs — online listing fees, agent placement fees to find a tenant
• Void period expenses — quit rent, assessment, and mortgage interest continue to be deductible even during months when the property is vacant between tenancies, as long as the property remained available for rent

What is NOT deductible

• Mortgage principal repayment
• Capital improvements to the property
• Costs of acquiring the property (these are capital costs, not revenue deductions)
• Personal expenses, even if related to the property
• Expenses incurred during a period when the property was not available for rent (e.g., you used it as your own residence)

Rent for Part of a Property: Apportionment Rules

If you rent out a room in your own home, you must apportion expenses between the rented portion and your personal-use portion. The standard method:

Deductible portion = (Rented floor area / Total floor area) x Allowable expenses

Example: Renting one room of a 1,000 sq ft apartment

If the room was rented at RM600 per month (RM7,200 annually), the taxable rental income is RM7,200 - RM1,965 = RM5,235. At the 13% tax bracket, the tax on this rental income is approximately RM680 — a small fraction of the rental revenue.

Rental Income and Property Sale: The RPGT Interaction

When you sell a property that was rented, two separate tax regimes are relevant:

During the rental period

Rental income is taxed annually as part of your income tax return at your marginal rate.

At the point of sale

Any capital gain on the property is subject to Real Property Gains Tax (RPGT) at the prevailing RPGT rate, which depends on the holding period and your residency status.

The two taxes are independent. Rental income does not reduce your RPGT, and RPGT does not reduce your rental income. However, the rental history matters for RPGT because LHDN cross-references declared rental income with stamp duty records. If you bought a property 5 years ago and LHDN has no record of rental income being declared, the assumption is that the property was owner-occupied — and if you were actually renting it out and not declaring the income, the RPGT assessment can be used to open an income tax audit for the undeclared rental years.

How to Declare Rental Income in Your Tax Return

Form BE (employee with rental income only)

Rental income is declared in the dedicated rental income section of Form BE. You report:

• Gross annual rental received
• Deductible expenses by category (quit rent, assessment, mortgage interest, maintenance, insurance, management fees, other)
• Net rental income (gross minus deductions)

LHDN does not require you to attach receipts or mortgage statements with the filing, but you must retain them for 7 years for audit purposes.

Record-keeping for rental income

For each rented property, maintain a dedicated file (physical or digital) containing:

• Tenancy agreement (stamped copy)
• Monthly rental payment records (bank statements)
• Receipts for every claimed expense
• Mortgage statement showing the interest-principal split for each year
• Quit rent and assessment receipts
• Any correspondence with LHDN

If you use the DuitTools PCB calculator to estimate your overall tax before filing, you can input your expected rental profit alongside your employment income and reliefs. This gives you an advance indication of your final tax position so there are no surprises at filing time.

FAQ

I only rented my property for 6 months of the year. Do I still declare?

Yes. Declare the rental income for the 6 months the property was tenanted. Expenses for the full 12 months — quit rent, assessment, mortgage interest — are deductible, including for the void period, if the property was available for rent throughout. If you lived in the property for the 6 non-rented months, only the rental-period expenses are deductible.

What if my rental income is less than my mortgage payment?

The mortgage principal repayment is not deductible, so the calculation is not "rent minus mortgage payment." If your rental income minus deductible expenses produces a net rental loss, you report zero rental income for that property for the year. The loss cannot be offset against employment income. Rental losses from one property can sometimes be offset against rental profits from another property — check with LHDN or a tax agent, as the treatment depends on the specifics.

Can I claim depreciation on the property itself?

No. The Income Tax Act does not provide for depreciation on residential investment property for individual landlords. This is a significant difference from some other countries (the US, Australia) where depreciation or capital allowance on the building itself is a major tax benefit. In Malaysia, only the specific deductible expenses listed are available to individual property investors.

How does LHDN know I have rental income?

LHDN cross-references data from multiple sources: stamp duty records from property purchases show acquisition; tenancy agreement stamping records show the property is being rented (because a tenancy agreement over 1 year must be stamped); bank accounts receiving regular deposits are visible through financial surveillance data; and rental income data from property management companies and real estate agents are increasingly collected. The data-matching capability is not comprehensive, but it improves every year.

Can I set up a company to hold my rental properties and reduce tax?

Yes, but the tax analysis is not straightforward. A company pays income tax at a flat 15-24% (depending on paid-up capital and chargeable income thresholds) on rental profits. An individual pays at progressive rates of 0-30%. The crossover point depends on your personal marginal rate relative to the corporate rate. Additionally, transferring existing properties into a company triggers stamp duty on the transfer and RPGT on the disposal at market value. This is a structural decision that requires specific professional advice.

Do I need to register with LHDN as a landlord?

There is no separate landlord registration. Your existing tax reference number (for your employment income) is used when you add rental income to your Form BE or Form B. If you are a first-time taxpayer because the rental income pushes you above the filing threshold, you must register for a tax reference number through the e-Daftar system on the LHDN portal or at a branch.