Rental Property Tax Deductions in Canada: Expenses, CCA, and Recapture
The mortgage on a rental is still a mortgage. The hub is the Canadian mortgage guide. Default insurance, if a small rental is insured, is the CMHC guide, which publishes a separate small-rental premium table. Whether the property should have been a home you live in is primary residence versus rental. A sale, including recapture, connects to the capital gains guide. The form is T776. The guide is T4036.
- CRA's deductible list includes advertising, insurance, interest and bank charges, office expenses, professional fees, management fees, repairs and maintenance, salaries, property taxes, travel, utilities, motor vehicle expenses, and other rental expenses.
- Interest on money borrowed to buy or improve the rental is deductible. Interest on funds you took out for personal use is not. A mortgage penalty or a fee to reduce the rate is prorated over the remaining term, not deducted in full.
- Legal fees to buy the property are not a current expense. CRA's example splits them between land and building and adds them to cost.
- Class 1 is 4% for most buildings acquired after 1987. Land is not depreciable. In the year of acquisition the half-year rule usually applies. CCA cannot create or increase a rental loss.
- Recapture happens when sale proceeds exceed the undepreciated capital cost of the class plus additions. It goes on line 9947 of the T776. It is income, not a capital gain. A capital gain can exist on top of it.
Which expenses are current?
CRA's rental-expenses page says you can deduct any reasonable expense you incur to earn rental income. Current or operating expenses are recurring and short-term. The example CRA uses is repairs that keep the property in the same condition it was in when you acquired it. You deduct those in the year you incur them. Capital expenses provide a benefit that lasts for years. Buying or improving the property is the example. You do not deduct the full amount in the year. You deduct CCA instead.
| Cost | Current or capital | The constraint CRA prints |
|---|---|---|
| Insurance, repairs, utilities, management fees, advertising | Current, if they earn rental income | Reasonable, and incurred to earn rent. A personal portion of a mixed property is not deductible. |
| Interest on money borrowed to buy or improve the rental | Current, as interest | Personal use of refinanced funds is not deductible against the rental. CRA's example is a landlord who uses new mortgage money personally. |
| Fee or penalty to pay out or reduce the mortgage rate | Prepaid, not all at once | Prorate over the remaining original term. CRA's example is a five-year term and a fee paid in year three, deducted over the years left. |
| Property taxes | Current, for the period the property was available for rent | Vacant land has a further limit: interest and property taxes cannot create or increase a rental loss. CRA says they can be added to the cost of the land. |
| Legal fees to buy | Capital, split between land and building | Not deducted from gross rent. CRA's example: a $200,000 property, $50,000 land and $150,000 building, $10,000 of legal fees. $2,500 goes to land, $7,500 to the building. |
| A new roof, an addition, a lasting improvement | Capital | Repairs that restore the old condition are current. Improvements that make it better than it was are capital. The line is factual. A paint job and a new storey are not the same invoice. |
| Landscaping | Current, in the year paid | CRA says you deduct landscaping only in the year you paid it, even if you use the accrual method. |
| Condominium fees for upkeep and current common expenses | Current | CRA points at the portion that is upkeep, repairs, maintenance, and other current expenses. A special assessment that is a capital improvement to the building is not automatically that line. |
Table as of October 2026. Sources: CRA's "rental expenses you can deduct" page and Guide T4036 as returned in the rental-income chapter. Line numbers on the T776, including 8710 for interest and 8960 for repairs, are the ones CRA prints on that expenses page. Confirm the year's form. A renamed line is still the same test.
What is capital cost allowance on a rental?
CRA says you cannot deduct the purchase price of a building, furniture, or equipment in the year you buy it. You deduct CCA over time. Land is not depreciable. Only the building goes in the class. CRA's class list for rentals includes Class 1 at 4%. CRA's T4002 chapter says Class 1 includes most buildings acquired after 1987, unless they belong in another class. The half-year rule, in that same chapter, generally lets you claim CCA on one-half of the net additions in the year you acquire the property.
The same T4002 chapter says that under proposed changes, a new purpose-built residential rental may be eligible for an accelerated rate of 10% if it becomes available for use before 2036 and construction, or a substantial renovation from commercial use, began after April 15, 2024 and before 2031. "Proposed" is CRA's word on that page. Do not file 10% because a summary said the incentive exists. Read the T776 instructions for the year you are filing. A building that misses the test stays at 4%.
CRA's page on how much CCA you can claim says you calculate net income or loss from all your rental properties before you claim CCA. If the properties together are already in a loss, you cannot claim CCA to make the loss bigger. Salvador's example on that page is a net loss of $500, and he cannot claim CCA on the buildings or the appliances. Current expenses can still produce a loss. CCA is the deduction that stops at zero rental income. Recapture, if you have it, is included when you do that netting.
The building is $150,000 of a $200,000 purchase and the land is $50,000. Legal fees are $10,000. Three-quarters of the fee, $7,500, joins the building. One-quarter, $2,500, joins the land and is never depreciated. Class 1 at 4% applies to the building pool, not to $157,500 in year one if the half-year rule applies. Half of the building addition would be the first-year base, before the 4%. This paragraph is the sequence, not a filled-in T776. Soft costs during construction follow a different rule. CRA points at them separately. Do not dump a construction-period property tax bill into repairs without reading that section.
What is recapture when you sell?
CRA's line 9947 page says a recapture of CCA can happen if the proceeds from the sale of depreciable rental property are more than the undepreciated capital cost of the class at the start of the period plus the capital cost of additions during the period. If the UCC after additions and dispositions is negative, that negative amount is the recapture, and you enter it on line 9947. A co-owner enters their share. You cannot claim CCA in the class when that column is negative.
Recapture is income. It is the CCA you deducted in earlier years, coming back because the building did not decline the way the deductions assumed. A capital gain is a different amount: proceeds above the capital cost, after selling costs. You can owe both. Legal fees on the sale reduce proceeds for the capital gain and also affect the recapture calculation. T4036 says the legal fees on a sale are deducted from proceeds when you calculate the gain or loss, and that the same deduction matters for recapture and for a terminal loss. The capital gains guide is the inclusion rate. The principal residence exemption does not shelter a building you have been depreciating as a rental, except to the extent a real designation applies. Do not assume it does. The primary-residence page is the designation.
The claim is a maximum, not a requirement. Landlords who expect to sell into a high-income year sometimes claim less, or nothing, so there is less to recapture later. That is a timing choice. It is not a way to turn the building into a current expense. If you claim nothing, you also give up the deduction in the years the property was cash-flow positive. Write the choice down. A preparer can model it. This page will not.
Frequently asked questions
Can I deduct the full mortgage payment?
No. The interest can be deductible when the borrowed money was used to earn rental income. The principal is not an expense. It is a repayment of the loan. A blended payment has to be split. The lender's annual statement is the split. Personal use of a refinance is not interest against the rental, even if the mortgage is registered on the rental.
Is a new appliance a repair?
Replacing a broken part so the property stays in the condition you bought it in is the current-expense idea. A new appliance is usually capital, in a class with its own rate, and CRA says you can claim CCA on appliances as well as on the building, still subject to the rental-loss limit. Read the class list before you put a fridge in Class 1.
What if I live in one unit and rent the other?
You deduct the rental portion. Personal occupancy is not a rental expense. The split has to be reasonable, often by area, and it affects both expenses and CCA. Designating the whole building as a principal residence while you claim full CCA on it is the contradiction the primary-residence page is about. Keep the square footage and the leases.
Can rental losses offset my salary?
A net rental loss, after current expenses that are allowed, is generally applied against other income. CCA cannot be used to create or enlarge that loss. Vacant-land interest and property taxes have their own stop. A loss that exists only because the rent is below market to a relative is a facts problem, not a strategy. CRA's reasonableness test is the sentence to read before you file one.
Do I have to claim the 10% purpose-built rate?
Only if the building meets the test on the current form, and only to the extent the change you are relying on is actually in force for that year. CRA's T4002 page described the 10% rate as a proposed change, with a construction window after April 15, 2024 and before 2031, available for use before 2036. If your building is an ordinary house acquired years ago, it is not that incentive. Class 1 at 4% is the default this page will stand behind.
Where does recapture go if I sell at a loss?
If the proceeds do not exceed the UCC of the class, you do not have recapture. You may have a terminal loss if nothing remains in the class, which is a deduction, not an inclusion. A sale below your original cost can still recapture CCA if the proceeds are above the UCC you have left after years of claims. Run column 7 of Area A. Do not guess from the listing price.
Sources
- CRA: rental expenses you can deduct
- CRA: how much CCA you can claim, including the rental-loss limit
- CRA: rental classes of depreciable property
- CRA T4002 chapter 4: Class 1 at 4%, half-year rule, proposed 10% purpose-built rate
- CRA: line 9947, recaptured CCA
- CRA Guide T4036, Rental Income
The deduction is the T776. The sale is the recapture.
Interest, CCA, and the capital gain are three different lines. The 2026 tax guide is the filing companion.
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