Homeowner

Tax Deductions on Rental Properties

You claim rental income and expenses on Form T776. Include rent collected from tenants as rental income in the current tax year. Claim tax deductions for any expenses related to your rental property. Common rental property expenses include home insurance, heat, hydro, water and mortgage insurance. Claim the full amount of expenses if it is for a rental property, but only a percentage if it is for part of your principal residence.

Home Insurance

Deduct property insurance premiums paid towards coverage on your rental property. Deduct only the current year’s coverage, even if your premiums provide coverage for over a year. Deduct the remaining premiums in the year they provide insurance coverage for. Claim the full amount if you are renting out a separate property or only a portion if it is part of your principal residence. If you paid $2,000 a year in insurance premiums for your rental property, you could claim the full amount on your tax return as long as the rental property is not your principal residence.

Advertising

Claim a tax deduction for fees paid towards advertising your rental property. Newspapers, websites and trade publications are all good places to advertise and claim a tax deduction. Unlike property insurance and utilities, claim the full amount of advertising since it relates fully to your rental property. If you spend $500 to advertise your vacant apartment in the newspaper for a month, you can claim the full amount as an advertising expense on your tax return.

Interest

Deduct mortgage interest you borrow to finance the purchase of your rental property. Do not claim a tax deduction for mortgage principal. Deduct funds borrowed to help finance improvements to your home. Only claim a deduction for soft costs. The Canada Revenue Agency defines soft costs as funds you borrow for construction, renovations and upgrades to your rental suite to make it more suitable.

Also deduct fees related to obtaining your mortgage, such as the mortgage application, appraisal and legal fees paid to your real estate lawyer. If you paid $2,000 to your real estate lawyer for closing costs, claim it on your tax return to help offset your rental income.

Property Taxes

Property taxes are determined by your province and collected by your municipality. Deduct property taxes paid to your municipality in the current year. Claim only the portion that relates to your rental property. For example, if you paid $3,000 in property taxes on your principal residence in 2016 and you rent out your basement apartment (representing 40 percent of the square footage of your home), claim $1,200 on your tax return.

Utilities

Utilities are a major expense for landlords. You can claim a tax deduction for the portion of utilities related to your rental property or suite. Claim the full amount if you rent out the full property, or claim a portion if you rent out a suite in your principal residence. Deduct the following utilities related to your property, if you pay for them: heat, hydro, water and cable.

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