photo credit: amishsteve
No landlord would like to pay more than necessary for utilities or other operating expenses for a rental property. But, every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of all the tax deductions available for owners of rental property.
Rental real estate provides more tax benefits than almost any other investment. Often, these benefits make the difference between losing money and earning a profit on a rental property. But tax deductions are worthless if you don’t take advantage of them. Here are the top six tax deductions for owners of rental property.
1. Interest. Interest is often a landlord’s single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property. In Malaysia, from 2009 to 2011, this tax benefit has been extended to the mortgage interest of your first home. However, interest payment on mortgage refinance loan is not deductible for both rental property and home.
2. Repairs. The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
3. Insurance. You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.
4. Legal and Professional Services. You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
5. Employees and Independent Contractors. Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).
6. Casualty and Theft Losses. Finally, if your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called “casualty” losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.
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Great Job
The deduction in terms of interest applies to privately owned property or company owned? And can it be applied to multiple properties too?
Hi Afiq Rohimi,
It applies to all rental properties, regardless of the ownership and the number of properties, as long as the properties generate income.
Cheers
Hi Ong.
I am still searching for professionals with an alternative answer.
Great article, here is what I found from the web.
Commercial units, shop-houses and residential properties
The letting of 4 or more commercial units, 4 or more floors of shop-houses or 4 or more residential properties or any combination of 4 units of the above may be treated as a business source of a company and the income therefrom charged to tax under section 4(a). [the entire property (except for a shop-house) constituted under the particular title should be included in the letting].
http://www.hasil.org.my/english/pdf/ruling(1)2004.pdf
Thanks for your sharing, Jason.
Cheers
I would like to understand further on the interest portion. When it is stated that In Malaysia, from 2009 to 2011, this tax benefit has been extended to the mortgage interest of your first home. Does it mean that the purchase of the home has to be done from 2009 to 2011 in order to be entitled for this benefit? Just to reconfirm if one has paid cash for a property and later decide to re-finance it, will he or she be entitle for the tax deduction on the interest for the mortagage?
Like what is being mentioned, if you have employees, you can deduct the cost of their health and workers’ compensation insurance and also the landlord is entitled to tax deductions on legal and professional services related to the rental property. Does one need to manage their rental properties through a property holding company or at least fulfill the minimmum requirements for rental income to be considered as business income, in order to entitle oneself for these benefits?
Hi Jess,
The tax benefit of interest deduction for home is applicable to all existing home loans served within these 3 years, not only new homes purchased within this period.
Mortgage refinance is not entitled to the tax deduction benefit on interest.
Yes, one has to fulfill the requirements for rental income to be considered as business income in order to be eligible to deduct operating expenses from the income, but not necessary has to manage rental properties through an investment holding company. In fact, an investment holding company enjoys less deductibles compared to companies in other trades.
You may read the public ruling shared by Jason for more details about how rental income can be considered as a business income.
Cheers
Oh btw, this website is full of information pertaining real property in JB. You’ve done a marvellous job OngKL, two thumbs up for your effort and hard work. You don’t mind if I add this site to my blogroll right? =)
Thank you, Afiq Rohimi. Please go ahead.
Cheers