Property rental income: how to report it and expenses you can deduct (YA 2026)

Quick summary

Rental of real property is generally treated as a non-business source taxed under s.4(d) of the Income Tax Act 1967 (ITA). It becomes a business source (s.4(a)) only if maintenance or support services are provided comprehensively and actively.
Expenses that are directly, wholly and exclusively incurred in producing the rent are deductible — for example, loan interest, quit rent/assessment tax, fire insurance and ordinary repairs.
Initial expenses (e.g. advertising and legal fees to obtain the first tenant) are not deductible.
Non-resident landlords are taxed on rent at a fixed rate of 30% from YA 2020.

Rent: business or non-business source?

The first question to answer: is your rental activity considered a business for tax purposes?

Non-business source (s.4(d)) — the usual treatment. Rent is taxed because the income arises passively from property ownership, without additional services. (Source: Public Ruling (KU) 1/2004 ¶3; e-Buletin Hasil Edition 5/2023.)
Business source (s.4(a)) — if you provide maintenance or support services comprehensively and actively in connection with the property, for example daily management and services to tenants. (Source: KU 4/2011 §4–5; e-Buletin Hasil Edition 5/2023.)

There is also a concession of 4 units or more (commercial units, shop-house floors or residential property) that may be treated as a business source (s.4(a)). However, HASiL emphasises the active-services test in KU 4/2011, so this concession must be checked against the facts of your case. (Source: KU 1/2004 ¶5.2; KU 4/2011.)

Deductible expenses

For s.4(d) rental income, expenses are deductible if they are directly, wholly and exclusively incurred in producing the rental income (s.33(1) ITA). These include:

Quit rent and assessment tax.
Interest on loans taken to finance the purchase of the property being rented out.
Fire insurance premiums.
Expenses for collecting rent, including legal costs to enforce rent collection.
Expenses for renewing the lease or changing tenants.
Ordinary repair expenses to keep the property in a serviceable state.

(Source: KU 4/2011 §8.2; Working Sheet HK-4.)

Non-deductible expenses

Initial expenses — costs to obtain the first tenant, such as advertising and legal fees, are not deductible because they are incurred to create the source, not to produce rental income. (Source: KU 4/2011 §8.3.)
Replacement cost of equipment — full details have not been extracted at this review; this item still awaits official confirmation from HASiL — check again with HASiL before deciding.

Pooling of properties

Properties can be pooled for the computation of statutory rental income:

For s.4(d): properties can be pooled by category — residential; shop house/commercial property; vacant land — and only properties that have started receiving rent.
For s.4(a): all properties are treated as one business source.

(Source: KU 4/2011 §7; KU 1/2004 ¶5.2 and ¶7.2.)

Capital allowances and industrial building allowances

Capital allowances (furniture/equipment) and industrial building allowances can be claimed in certain circumstances for rental activities. Specific rates and eligibility — this item still awaits official confirmation from HASiL — check again with HASiL before deciding. (Source: KU 4/2011 §10–12.)

Rent received as an advance

Rent received as an advance has its own rules. Full details — including the difference between deposits and advances and when they count as income — this item still awaits official confirmation from HASiL — check again with HASiL before deciding. (Source: KU 4/2011 §9.)

Non-resident landlords

Rent received by non-resident individuals is taxed at a fixed rate of 30% from YA 2020 (together with business/trade/profession, employment and dividend income). (Source: Non-Resident Individuals page — HASiL.)
Payments of rent for movable property to non-residents fall under the special class s.4A and are subject to 10% withholding tax (s.109B) on the gross amount, except where a different PPPDK rate applies. (Source: Withholding Tax page; Form TA 2026 Explanatory Notes; ITA s.109B.)
Important note: HASiL does not list real-property rent in the withholding-tax schedule; whether a tenant must withhold tax for real-property rent — this item still awaits official confirmation from HASiL — check again with HASiL before deciding.

Rental losses and short-term letting

Rental losses (s.4(d)): whether they can be deducted from aggregate income and/or carried forward — this item still awaits official confirmation from HASiL — check again with HASiL before deciding. Only inter-property pooling is confirmed (see section above).
Short-term / flow letting (e.g. Airbnb, tourist letting): no specific guideline or ruling was confirmed in this review. Its treatment depends on the facts — if active services are provided, it may fall under s.4(a). Any specific conclusion — this item still awaits official confirmation from HASiL — check again with HASiL before deciding.

Frequently Asked Questions (FAQ)

Q. Do I need to report house rent to HASiL? A. Yes — rent is taxable income. How it is reported depends on whether it is a business source (s.4(a)) or a non-business source (s.4(d)).

Q. Can I deduct home loan interest? A. Yes, if the loan was taken to finance the purchase of the property being rented out. (Source: KU 4/2011 §8.2; HK-4.)

Q. How much tax do non-resident landlords pay? A. A fixed rate of 30% on rent from YA 2020. For movable-property rent, 10% withholding tax (s.109B) on the gross amount. (Source: Non-Resident Individuals; Withholding Tax.)

Q. I have several properties. Can I pool them? A. Yes — by category for s.4(d) (residential; shop house/commercial; vacant land). For s.4(a), all properties are treated as one business source.

Q. What if I make a loss from rent? A. The treatment of rental losses has not been confirmed from official sources at this review — this item still awaits official confirmation from HASiL — check again with HASiL before deciding. Refer to HASiL for your specific situation.