When you purchase your first investment property in Canada, several expenses may be tax deductible, though not all costs related to the purchase are treated equally by the CRA. Generally, ongoing expenses like mortgage interest, property taxes, insurance, utilities, and maintenance are deductible against your rental income. However, the purchase price itself, closing costs tied to acquiring title, and capital improvements are not deductible in the year of purchase. Instead, these form part of your adjusted cost basis or capital cost allowance (CCA) claim over time. Once you own an investment property, the CRA allows you to deduct reasonable expenses you incur to earn rental income. These include: Mortgage interest (not principal repayment) Property tax and municipal levies Home insurance and liability coverage Condo fees and common property charges Utilities (if you pay them) Maintenance, repairs, and minor renovations Property management fees and advertising for tenants Legal and accounting fees related to rental operations Property inspection and appraisal costs Pest control and cleaning services Closing costs such as legal fees, land transfer tax, title insurance, and home inspection fees paid at purchase time are typically not deductible in the year of purchase.
No, the down payment is part of your purchase price and forms the cost basis of your property. It is not deductible as an expense. However, it reduces your capital gain when you sell.
Yes, this is a core rule. Mortgage interest on a rental property is fully deductible, but principal repayment is not. The interest portion of your payments decreases each year as principal increases.
Claiming CCA reduces your taxable rental income each year, saving you tax. However, when you sell the property, the CRA recaptures the depreciation you claimed and taxes it. Many investors avoid CCA to prevent this future tax bill.
Most closing costs (legal fees, land transfer tax, appraisals, title insurance) are added to your adjusted cost basis rather than deducted in year one. They reduce your capital gain on sale. Exception: legal fees for setting up rental agreements may be deductible.
Repairs maintain the property in its current state and are deductible. Capital improvements add value or extend life and must be depreciated via CCA. For example, fixing a roof leak is a repair, but replacing the entire roof is a capital improvement.