When you are taxed on your rental profit rather than your gross rent, the expenses you can deduct decide how much tax you pay. Knowing what counts, and keeping the proof, can reduce the bill by a lot. This guide applies to the annual route; the flat monthly rental income tax allows no expense deductions.

Expenses that are normally deductible

An expense is deductible if it was incurred wholly and exclusively to earn the rent. Typical examples are:

  • Repairs and maintenance that restore the property to its former condition: repainting, fixing plumbing, replacing a broken door
  • Agent and management fees, and the cost of finding tenants
  • Interest on a loan used to buy or improve the rental property
  • Insurance on the building
  • Land rates and county charges; see land rates and county property charges
  • Security, cleaning and caretaker costs that you pay for
  • Legal fees for preparing tenancy agreements and recovering rent
  • Utilities you pay on behalf of the property
  • Bad debts that have been properly written off; see unpaid rent and bad debts

Expenses that are not deductible

  • Capital costs. Building an extra floor or buying the property is not a deductible expense; it increases your cost for capital gains instead.
  • Loan principal repayments, because only the interest is a cost.
  • Personal or private expenses, such as repairs to the part of a building you live in.
  • Fines and penalties.

Wear and tear and capital allowances

Equipment you buy for the rental, such as furniture in a furnished flat, may qualify for capital allowances in place of an immediate deduction. The capital allowances calculator shows how the deduction is worked out, and the fixed asset register tracks each asset.

A worked example

Rent received is KES 1,200,000. Repairs are KES 120,000, agent fees KES 96,000, loan interest KES 300,000 and insurance and rates KES 54,000. Total deductible costs are KES 570,000 and the taxable profit is KES 630,000. The tax on the annual route is worked out on that figure, not on the rent. The rental income annual tax computation workbook compares it with the flat tax, and monthly rental income tax or annual tax explains how to choose.

Keep proof for every claim

Keep invoices, receipts and bank records for each expense, in a folder for the property. Where possible, ask suppliers for eTIMS invoices that carry your PIN, because invoices without proper details may be rejected; see eTIMS e-invoicing explained. The tax records checklist and document log shows what to keep.

Split mixed costs fairly

If a cost serves both the rental and your own use, such as a shared security guard, claim only the share that relates to the rental, on a reasonable basis, and write the basis down.

Withholding on the rent itself

If tenants or agents withhold tax from your rent, claim it as a credit; see withholding tax on rent.

Rules about deductions are set by the Income Tax Act. Confirm the treatment of unusual costs with KRA or a registered tax agent.

Common questions

Can I deduct the mortgage on a rental property? Interest on a loan used to buy or improve the let property can be deducted where you are taxed on profit. The repayment of the loan capital cannot.

Can I deduct repairs and improvements? Repairs that restore the property are deductible. Improvements are capital costs that do not reduce rental profit directly, though some equipment earns capital allowances.

Do these deductions apply under monthly rental income tax? No. Under that route tax is charged on gross rent, with no deductions, so the costs matter only if you choose the annual route.