Rental income is taxed differently than employment income, and understanding what you can deduct makes a massive difference to your bottom line. Whether you're renting out a basement suite, an investment condo, or running an Airbnb, this guide covers everything you need to know about rental income tax in Canada for 2026.
Common Rental Property Tax Deductions (2026)
The CRA allows you to deduct any reasonable expense incurred to earn rental income. Here are the most common deductions:
| Expense Type | Deductible? | Notes |
|---|---|---|
| Mortgage Interest | YES | Interest only, not principal payments |
| Mortgage Principal | NO | Not deductible (builds equity) |
| Property Tax | YES | Fully deductible |
| Home Insurance | YES | Landlord insurance premiums |
| Repairs & Maintenance | YES | Current repairs only, not improvements |
| Utilities | YES | If landlord pays (not tenant) |
| Property Management Fees | YES | Fees paid to property managers |
| Advertising for Tenants | YES | Listing fees, signs, etc. |
| CCA (Depreciation) | OPTIONAL | 4%/year, creates recapture on sale |
Key Rule: Interest vs. Principal
Only mortgage interest is deductible, not principal payments. Your lender provides an annual statement showing the breakdown. This is the most common mistake landlords make on their tax returns.
Calculate Your Rental Income Tax
Use our interactive calculator to see your net rental income, tax owing, and actual after-tax cash flow. Enter your rental income and all deductible expenses to get a complete picture.
Rental Income Tax Calculator
Calculate your net rental income, tax implications, and actual after-tax cash flow from your rental property.
Total rent collected per year
Your other taxable income
Interest only, not principal
Utilities, management fees, etc.
How it works: Rental income is added to your employment income and taxed at your marginal rate (29.65%). You can deduct mortgage interest (not principal payments), property tax, insurance, repairs, and other expenses.
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Real-World Examples
Let's look at three common rental scenarios to see how rental income tax works in practice:
Long-Term Rental with Profit
Traditional landlord scenario
Scenario:
- •Maria: Rents out a condo in Toronto for $2,400/month ($28,800/year)
- •Employment income: $90,000
- •Expenses: Mortgage interest $10,000, property tax $4,500, insurance $1,800, condo fees $6,000, repairs $1,200
Tax Calculation:
- Net rental income:$5,300
- Total taxable income (ON):$95,300
- Marginal tax rate:31.48%
- Tax on rental income:$1,668
- After-tax cash flow:$3,632
Result: Maria nets $5,300 in rental income before tax, but after paying tax at her 31.48% marginal rate, she keeps $3,632. The mortgage interest deduction is key to keeping this rental profitable.
Airbnb Short-Term Rental
Renting your principal residence 70 days/year
Scenario:
- •David: Rents his basement on Airbnb for 70 nights at $150/night ($10,500/year)
- •Employment income: $75,000
- •Proportional expenses (basement is 30% of home): Mortgage interest $2,400, utilities $800, insurance $300, cleaning $700, Airbnb fees $1,050
Tax Calculation:
- Net rental income:$5,250
- Total taxable income (ON):$80,250
- Marginal tax rate:29.65%
- Tax on rental income:$1,557
- After-tax cash flow:$3,693
Result: David must report this income (over 45 days) but can claim proportional expenses based on the percentage of his home used for Airbnb. He keeps $3,693 after tax. Keep detailed records of all Airbnb income and expenses.
Rental Loss Scenario
High expenses create tax-deductible loss
Scenario:
- •Jennifer: Rents house for $2,000/month ($24,000/year), tenants moved out mid-year
- •Employment income: $120,000
- •Expenses: Mortgage interest $14,000, property tax $5,500, insurance $2,200, major repairs $6,000, utilities during vacancy $1,800
Tax Calculation:
- Net rental income:-$5,500 (loss)
- Total taxable income (ON):$114,500
- Marginal tax rate:37.91%
- Tax savings from loss:$2,085
- Net out-of-pocket:-$3,415
Result: Jennifer's rental loss of $5,500 offsets her employment income, saving her $2,085 in taxes. She's still out-of-pocket $3,415, but the tax deduction helps cushion the blow during a difficult rental year.
Key Takeaway from Examples
Rental income is added to your total income and taxed at your marginal rate. Deductible expenses are critical to reducing your tax burden. Even rental losses can reduce your overall tax by offsetting other income.
Frequently Asked Questions
Frequently Asked Questions
Q:Can I deduct mortgage principal payments on a rental property?
A:No, you cannot deduct mortgage principal payments. Only the mortgage interest portion of your payments is tax-deductible. For example, if your monthly payment is $2,000 and $1,200 is interest while $800 is principal, you can only deduct the $1,200 interest. Your lender provides a statement each year showing the breakdown. This is one of the most misunderstood rental deductions in Canada.
Q:What is the 45-day rule for rental income?
A:The 45-day rule states that if you rent out your principal residence for less than 45 days per year, you don't have to report the rental income on your tax return. However, you also cannot claim any rental expenses for those days. This rule is commonly used for short-term rentals like Airbnb during peak seasons. If you rent for 45 days or more, you must report all rental income and can claim proportional expenses.
Q:Do I have to report Airbnb income in Canada?
A:Yes, you must report all Airbnb income to the CRA, even if Airbnb doesn't issue you a tax slip. The 45-day rule applies: if you rent your principal residence for less than 45 days, you don't need to report income or claim expenses. For 45+ days, report all income and claim proportional expenses. Airbnb hosts can deduct mortgage interest, property tax, utilities, cleaning fees, Airbnb service fees, and a portion of home maintenance. Keep detailed records of all income and expenses.
Q:What is CCA and should I claim it on my rental property?
A:CCA (Capital Cost Allowance) is the tax term for depreciation on rental buildings. You can claim 4% of the building's value (not land) each year as a deduction. However, many landlords avoid claiming CCA because it creates 'CCA recapture' when you sell - you'll pay tax on all CCA claimed at your marginal rate, not the lower capital gains rate. Unless you need the deduction to offset rental income, it's often better to skip CCA and preserve the full capital gains treatment on sale.
Q:Can I deduct capital improvements or only repairs?
A:Regular repairs and maintenance are fully deductible in the year paid (fixing a leaky faucet, repainting, replacing broken windows). Capital improvements that add value or extend the property's life (new roof, renovating a basement, adding a deck) cannot be deducted immediately. Instead, they increase your property's adjusted cost base, reducing capital gains tax when you sell. Or you can claim CCA on improvements if you're already claiming it on the building.
Question: Can I deduct mortgage principal payments on a rental property?
Answer: No, you cannot deduct mortgage principal payments. Only the mortgage interest portion of your payments is tax-deductible. For example, if your monthly payment is $2,000 and $1,200 is interest while $800 is principal, you can only deduct the $1,200 interest. Your lender provides a statement each year showing the breakdown. This is one of the most misunderstood rental deductions in Canada.
Question: What is the 45-day rule for rental income?
Answer: The 45-day rule states that if you rent out your principal residence for less than 45 days per year, you don't have to report the rental income on your tax return. However, you also cannot claim any rental expenses for those days. This rule is commonly used for short-term rentals like Airbnb during peak seasons. If you rent for 45 days or more, you must report all rental income and can claim proportional expenses.
Question: Do I have to report Airbnb income in Canada?
Answer: Yes, you must report all Airbnb income to the CRA, even if Airbnb doesn't issue you a tax slip. The 45-day rule applies: if you rent your principal residence for less than 45 days, you don't need to report income or claim expenses. For 45+ days, report all income and claim proportional expenses. Airbnb hosts can deduct mortgage interest, property tax, utilities, cleaning fees, Airbnb service fees, and a portion of home maintenance. Keep detailed records of all income and expenses.
Question: What is CCA and should I claim it on my rental property?
Answer: CCA (Capital Cost Allowance) is the tax term for depreciation on rental buildings. You can claim 4% of the building's value (not land) each year as a deduction. However, many landlords avoid claiming CCA because it creates 'CCA recapture' when you sell - you'll pay tax on all CCA claimed at your marginal rate, not the lower capital gains rate. Unless you need the deduction to offset rental income, it's often better to skip CCA and preserve the full capital gains treatment on sale.
Question: Can I deduct capital improvements or only repairs?
Answer: Regular repairs and maintenance are fully deductible in the year paid (fixing a leaky faucet, repainting, replacing broken windows). Capital improvements that add value or extend the property's life (new roof, renovating a basement, adding a deck) cannot be deducted immediately. Instead, they increase your property's adjusted cost base, reducing capital gains tax when you sell. Or you can claim CCA on improvements if you're already claiming it on the building.
Watch Our Complete Video Guide
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