Capital cost allowance (CCA) is a tax deduction that lets you claim depreciation on rental property buildings and eligible improvements over time. Unlike land, which doesn't depreciate for tax purposes, the structure itself loses value annually, and the CRA allows you to deduct a portion of that decline from your rental income. For 2026, residential rental buildings typically fall into Class 1 (4% declining balance) or Class 1.1 (straight-line, 4% per year), depending on when the building was acquired and its condition, and claiming CCA can significantly reduce your taxable rental income each year. Not everything on your rental property qualifies for capital cost allowance. Understanding which items are eligible helps you maximize legitimate deductions: Building and Structure: The main residential building qualifies for CCA if it was built after 1987. The entire cost of the building, minus land value, can be claimed over its useful life. Eligible Improvements: Updgrades like new roofing, windows, HVAC systems, electrical rewiring, plumbing replacements, and insulation qualify for CCA. These are considered capital improvements, not repairs. Furniture and Equipment: Built-in appliances may qualify under Class 8 (20% declining balance). This depends on whether they are permanently attached and integral to the property.
No. Land never qualifies for capital cost allowance under Canadian tax law. Only the building structure and eligible improvements qualify. You must separate the land value from the building value when calculating CCA.
Class 1 (4% declining balance) applies to buildings acquired before 2024 and allows a smaller deduction in year one. Class 1.1 (4% straight-line) applies to buildings acquired on or after January 1, 2024, and claims 4% of the original cost every year for 25 years, allowing larger deductions early on.
No. Claiming CCA is optional, and you don't have to claim the full amount available. However, once you start claiming it in a given year, the CRA expects consistent claims going forward. Some landlords delay CCA claims if they expect to sell soon to reduce recapture.
When you sell, any amount by which the sale price exceeds your remaining undepreciated cost is called recapture and is added back to your income as a taxable gain in the year of sale. This is separate from capital gains tax on the land.
Yes. Repairs and routine maintenance are fully deductible in the year incurred, whereas major capital improvements are added to the depreciable base and deducted over time via CCA. The distinction matters for your tax strategy.