Top six tax deductions for landlords

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Creative Commons License 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.

 

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

22 Comments

  • Great Job 🙂

  • Afiq Rohimi

    Reply Reply May 30, 2009

    The deduction in terms of interest applies to privately owned property or company owned? And can it be applied to multiple properties too?

    • ongkl

      Reply Reply June 1, 2009

      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

  • Jason Han

    Reply Reply May 30, 2009

    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

    • ongkl

      Reply Reply June 1, 2009

      Thanks for your sharing, Jason.

      Cheers

  • Jess

    Reply Reply May 30, 2009

    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?

    • ongkl

      Reply Reply June 1, 2009

      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

  • Afiq Rohimi

    Reply Reply June 1, 2009

    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? =)

    • ongkl

      Reply Reply June 1, 2009

      Thank you, Afiq Rohimi. Please go ahead.

      Cheers

  • edward

    Reply Reply September 5, 2010

    hi i recent bought a apartment in johore and receive a loan from bank.
    As i am a foreigner ,i would like to know if i let out the apartment what kind
    of rental tax i need to pay and is it deductible from the bank interest .are
    there any deduction i can get?
    thank

  • Roy

    Reply Reply February 3, 2011

    Thank you so much for the info.Just wondering on the interest on mortgage, can we only deduct on the first property or all property we have? Lil confuse there..

  • Szetoo

    Reply Reply March 27, 2012

    I just wonder how likely the tax authority can trace/catch individual if he/she does not pay rental income related tax.

  • TK Chua

    Reply Reply August 22, 2012

    What about the stamp duty we paid for when Tenancy Agreement is sent to the local council for stamping? eg stamp duty for rental of RM4000 for 2 years tenancy is Rm365.00. How to claim deduction when we do not have any receipt?

  • kt

    Reply Reply September 13, 2013

    ‘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.’

    Base on your above explanation, Is it mean now (2013), there is not more interest deduction of the loan. Kindly clarify.

    Thanks

  • s.jason

    Reply Reply December 24, 2013

    Will like to ask for condominium, is the management fee and sinking fund deductible as well?

  • fifi

    Reply Reply March 17, 2014

    When you re-finance your mortgage, are the legal fees for refinancing tax deductible?

  • Jason

    Reply Reply June 1, 2016

    A law firm just bought a property for its own use. Can MRTA be deducted as an expense in P &L in full in year bought. Any tax issues ? Thank yòu very much.
    Jason

    • ongkl

      Reply Reply June 1, 2016

      Hi Jason,

      According to some professional insurance agent it’s deductible for personal income tax. But I am not sure if it’s deductible for corporate tax. You may want to check with a professional tax consultant or accountant.

    • KCLau

      Reply Reply June 1, 2016

      We are not sure about that. You need to ask your accountant and tax agent.

  • Jason

    Reply Reply June 1, 2016

    Can anyone help out here?
    Thanx klOng for your guidance.
    Jason

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