Holiday Home vs Investment Property: Tax Implications in Malaysia

Understanding Property Classification for Tax Purposes

Is your Melaka property a holiday home or an investment property? The classification affects how much tax you pay on your Airbnb income. LHDN (Inland Revenue Board) has specific rules that can save—or cost—you thousands annually.

Here's what every Malaysian property owner needs to know.

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Property Classification: What's the Difference?

Holiday Home (Residential Property)

Characteristics:

• Purchased primarily for personal use
• Rented out incidentally (less than 50% of time)
• Owner uses property regularly (weekends, holidays)
• Not main source of income

Tax Treatment:

• Rental income: Taxable (but with deductions)
• Capital gains: RPGT applies (Real Property Gains Tax)
• Classification: Residential property

Investment Property (Commercial Use)

Characteristics:

• Purchased primarily for income generation
• Rented out full-time (Airbnb, long-term rental)
• Owner rarely uses property
• Main purpose: ROI and cash flow

Tax Treatment:

• Rental income: Fully taxable business income
• Capital gains: RPGT applies (but may be lower rate)
• Classification: Investment asset

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RPGT (Real Property Gains Tax) Explained

Current RPGT Rates (2024-2026)

For Individuals (Citizens/PR):

Disposition Year	Holiday Home	Investment Property
**Year 1-3**	30%	30%
**Year 4-5**	20%	20%
**Year 6+	10%	5%

Important: Investment properties get lower RPGT after year 6 (5% vs 10%)

RPGT Calculation Example

Scenario: Bought condo for RM 300,000, sold for RM 500,000 after 7 years

Capital Gain: RM 200,000

• Holiday Home: 10% × RM 200,000 = RM 20,000 tax
• Investment Property: 5% × RM 200,000 = RM 10,000 tax

Savings: RM 10,000 by classifying as investment property

Note: Must prove it was primarily for income (not personal use)

RPGT Exemptions

• No RPGT: After 10 years of ownership (for citizens)
• Once-in-lifetime: exemption up to RM 10,000 profit
• Low-cost housing: RM 200,000 or less (full exemption after 5 years)

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Rental Income Tax

How Rental Income is Taxed

For Holiday Homes:

• Taxable as residential rental income
• Added to personal income and taxed at marginal rate

Tax Rates (2025):

Chargeable Income	Tax Rate
**First RM 20,000**	0%
**RM 20,001 - 50,000**	2%
**RM 50,001 - 100,000**	6%
**RM 100,001 - 250,000**	12%
**RM 250,001 - 400,000**	20%
**RM 400,001 - 600,000**	25%
**Above RM 600,000**	26%

For Investment Properties:

• Taxable as business income
• Can register as sole proprietor business
• More deductions available (see below)

Allowable Deductions

Both Holiday Homes & Investments Can Deduct:

• Interest on loan: Full mortgage interest (not principal)
• Assessment tax: Local council property tax
• Fire insurance: Property insurance premiums
• Maintenance: Repairs, painting, servicing
• Agent fees: Management company commissions
• Advertising: Listing fees, professional photos
• Utilities: If paid by owner (not guest)
• 10% notional rent: For wear & tear (furniture, fixtures)

Investment Property Additional Deductions:

• Operating expenses: Full operational costs
• Staff salaries: If hiring cleaners, maintenance
• Transport: Travel to/from property for management
• Home office: If managing from home (portion)
• Professional fees: Legal, accounting, tax consultation

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Tax Calculation Examples

Example 1: Holiday Home Owner

Scenario: KL professional owns Pantai Kundur condo

• Rental income: RM 72,000/year (RM 6,000/month)
• Mortgage interest: RM 18,000/year
• Assessment + insurance: RM 3,000/year
• Maintenance: RM 2,000/year
• Management fee: RM 3,600/year (6%)

Net Rental Income:

• Gross: RM 72,000
• Deductions: RM 26,600
• Net: RM 45,400

Tax Calculation:

• Existing salary: RM 120,000
• Plus rental: RM 45,400
• Total taxable: RM 165,400
• Tax on rental portion: ~RM 5,448 (12% bracket)

Example 2: Investment Property Owner

Scenario: Same property registered as investment business

• Rental income: RM 72,000/year
• All same deductions: RM 26,600
• Additional deductions:
• Travel to Melaka (6×): RM 1,200
• Home office portion: RM 800
• Accounting fees: RM 500

Net Business Income:

• Gross: RM 72,000
• Deductions: RM 29,100
• Net: RM 42,900

Tax Calculation:

• Taxed at personal rate (added to income)
• Tax: ~RM 5,148 (slightly lower due to more deductions)

Key Benefit: Investment classification allows more deductions

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Tax Planning Strategies

Strategy 1: Maximize Interest Deduction

What It Is:

• Deduct full mortgage interest (not just principal)
• Example: RM 500,000 loan at 4.5% = RM 22,500/year deductible

Tip: Don't pay down mortgage faster—keep interest for deduction

Strategy 2: Time Your Sale

RPGT Reduction Over Time:

• Hold 5+ years: Rate drops to 20%
• Hold 6+ years: Rate drops to 10% (holiday) or 5% (investment)

Planning:

• Don't flip within 3 years (30% tax)
• Hold 6+ years for maximum benefit
• Consider reinvestment (Section 103, like-kind exchange)

Strategy 3: Use All Deductions

Commonly Missed Deductions:

• Travel expenses (RM 0.50/km for site visits)
• Home office (if managing property remotely)
• Professional photos (marketing expense)
• Premium listing fees (Airbnb Plus, etc.)
• Training courses (property management education)

Result: Can reduce taxable income by 20-30%

Strategy 4: Register as Business (If Multiple Properties)

Benefits:

• Separate business entity (sole proprietor)
• More deductions available
• Easier to track expenses
• Professional image for lenders

When to Do It:

• 3+ properties
• RM 100,000+ annual rental income
• Planning to scale portfolio

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Record-Keeping Requirements

What to Keep (Minimum 7 Years)

• Income records: Booking confirmations, bank statements
• Expense receipts: All deductible expenses
• Mortgage statements: Interest portions
• Assessment bills: Property tax payments
• Insurance policies: Premium payments
• Travel logs: Site visits, mileage
• Communication: Emails with agents/managers

Recommended Documentation

• Spreadsheet tracking monthly income/expenses
• Separate bank account for property
• Digital receipts cloud backup
• Annual summary from management company

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Tax Deadlines & Filing

Income Tax Filing

• Deadline: April 30 (manual), May 15 (e-Filing)
• Form: BE (individual) with rental income schedule
• e-Filing: Recommended (faster, less errors)

RPGT Payment

• Deadline: Within 60 days of SPA signing
• Form: RPGT1 via LHDN
• Payment: Must be cleared before transfer

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Common Mistakes to Avoid

Mistake 1: Not Declaring Rental Income

Problem: LHDN tracks bank deposits, Airbnb data

Penalty: 200% of tax owed + late fees

Solution: Declare all income, claim all deductions

Mistake 2: Missing Deductions

Problem: Overpaying tax by 20-30%

Solution: Track all expenses, work with tax advisor

Mistake 3: Wrong Property Classification

Problem: Paying higher RPGT or missing deductions

Solution: Classify based on primary purpose (use vs income)

Mistake 4: Poor Record-Keeping

Problem: Cannot prove deductions in audit

Solution: Professional management provides annual statements

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How We Help with Tax Compliance

At iHousing, we make tax season easy:

• Annual income statement: All rental income documented
• Expense breakdown: All deductible expenses listed
• Receipt archive: Digital copies of all receipts
• Tax summary: Ready for e-Filing submission

Result: Tax preparation in 30 minutes instead of 3 hours

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Consult a Tax Professional

Tax laws are complex and subject to change. This article is for information only.

We recommend:

• Consulting a licensed tax accountant
• Getting advice for your specific situation
• Planning strategies with professional

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Optimize Your Tax Position

Proper tax planning can save you RM 5,000-15,000 annually. The key is:

• Correct property classification
• Maximizing all deductions
• Professional record-keeping
• Strategic timing of sales

WhatsApp Us: +60 19-699 6688 Related Articles:

• [Rental Income Tax Calculator](/blog/airbnb-income-tax-malaysia-calculator)
• [Investment Property ROI Guide](/blog/melaka-airbnb-roi-calculator)
• [Legal Requirements for Airbnb](/blog/motac-license-requirements-airbnb-malaysia)

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Last Updated: January 2026 | Disclaimer: Not tax advice. Consult LHDN or licensed tax professional for your situation. Property classification affects your tax liability significantly. Understand the difference between holiday home and investment property to minimize your tax burden legally.