Income tax declaration of property rental - which expenses are deductible and which are not?

For most property owners in Malaysia who rented out their property, the rental collected from tenant is regarded as a non-business source of income and therefore is charged to the owner's income tax under section 4(d) of the Income Tax Act, 1967.

The amount of property rental income need to be declared is the gross rental income deducted by certain expenses incurred by the property in order to generate the rental.

The expenses that are income tax deductible including:

• Assessment
• Quit rent
• Property loan interest
• Fire insurance premium
• Expenses on rental collection
• Expenses on rental renewal, including the stamp duty
• Expenses on repairs and maintenance
• Expenses on replacement of rental assets
• Property service charges, maintenance fees, sinking fund, and Indah Water bills
• Legal expenses on renewal of tenancy agreement, recovery of rental arrears, etc. 
• Expenses on pest control
• Property agent fees/commission to renew the tenancy

The expenses that are not income tax deductible are initial expenses before the property is rented out, including:

• Advertising cost to get the tenant
• Property agent fees/commission to obtain the tenant
• Legal cost and stamp duty for initial tenancy agreement
• Expenses on renovation and improvement to get higher rental or to be more attractive to potential tenant

If the total rental income received is less than the total deductible expenses for the year, which shows that you have rental income loses instead of rental income gains for the year, then your taxable rental income for that particular year will be zero.

Note that rental income losses cannot be used to offset your other taxable statutory income of the year. The losses also cannot be carried forward to the next taxation year.

For more comprehensive information, you can refer to LHDN Malaysia Public Ruling No. 4/2011 : Income From Letting of Real Property.