Can I deduct mortgage interest on a rental property in Quebec?

Yes, mortgage interest on a rental property is fully deductible against rental income. Only the interest portion is deductible, not the principal repayment. For owner-occupied plexes, only the portion attributable to rental units is deductible.

What is the TP-128 form in Quebec?

The TP-128 is the Quebec provincial form for reporting rental income and expenses. It's the Quebec equivalent of the federal T776 form. Both must be filed if you own rental property in Quebec, reporting gross rents, deductible expenses, and net rental income or loss.

Can I claim CCA (depreciation) on my rental property?

Yes, you can claim Capital Cost Allowance (CCA) at 4% per year (Class 1) on the building portion of your rental property. However, claiming CCA will trigger recapture when you sell, so many accountants recommend not claiming it unless you have a specific tax planning strategy.

What triggers a CRA audit on rental property income?

Common triggers include: reporting rental losses for multiple consecutive years, claiming personal expenses as rental deductions, inconsistent income reporting, claiming 100% of expenses on a partially owner-occupied property, and unusually high repair costs relative to rental income.

Is a major renovation deductible on a rental property?

No, capital improvements (new roof, kitchen renovation, additions) are not immediately deductible. They are added to the adjusted cost base (ACB) of the property and depreciated through CCA. Only current expenses (repairs to maintain existing condition) are fully deductible in the year incurred.

Tax Deductions for Rental Property Owners in Quebec 2026

Owning rental property in Quebec means filing both federal (T776) and provincial (TP-128) rental income forms. The good news: numerous expenses are deductible, which can significantly reduce your tax bill. The key is knowing the difference between current expenses (immediately deductible) and capital expenses (added to your cost base).

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✅ Deductible Expenses: The Complete List

🏦 Mortgage interest — Only the interest portion; for a $600K mortgage at 4.5%, that’s ~$27,000 in year one

🏠 Property taxes — Municipal and school taxes, proportional to rental units

🛡️ Insurance — Property insurance premiums for the rental building

🔧 Repairs and maintenance — Plumbing fixes, painting, appliance repairs (to maintain, not improve)

💼 Management fees — Property management company (typically 5-8% of gross rent)

📋 Professional fees — Accountant, lawyer, credit check fees for tenants

📢 Advertising — Listing fees on rental platforms (Kijiji, Marketplace, etc.)

🚗 Travel — Mileage to/from the rental property for maintenance at CRA rates ($0.70/km in 2026)

For owner-occupied plexes (e.g., you live in one unit of a triplex), deductions are prorated. If you occupy 1 of 3 units, you can deduct 2/3 of shared expenses. Keep detailed records and receipts—the CRA requires documentation for all claims.

❌ Non-Deductible: Capital Improvements and ACB

New roof ($15,000-$25,000) → Added to ACB, not immediately deductible

Kitchen renovation ($20,000-$40,000) → Capital improvement, added to ACB

New windows ($8,000-$15,000) → Capital improvement if replacing all windows

Addition or extension → Always a capital expense

Mortgage principal → Never deductible (only interest is)

The CRA distinction: a repair restores the property to its original condition (deductible), while an improvement enhances it beyond the original state (capital). Replacing a broken window pane = repair. Replacing all windows with triple-pane = capital improvement. Capital expenses increase your adjusted cost base (ACB), reducing capital gains tax when you eventually sell.

📉 CCA (Capital Cost Allowance): Should You Claim It?

💡 CCA on rental buildings is 4% per year (Class 1, declining balance). On an $800K building, that’s up to $32,000 in deductions in year one. However, CCA claimed will be “recaptured” (taxed) when you sell.

CCA is optional—you choose how much to claim each year (from $0 up to the maximum). It can be valuable if you have high rental income now and plan to hold long-term. However, many Quebec accountants advise against claiming CCA because the recapture upon sale can create a larger tax bill than the annual savings.

Important rule: CCA cannot create or increase a rental loss. If your rental income is already at a loss after other deductions, CCA cannot deepen that loss. Consult an accountant specializing in real estate to model your specific scenario.

📋 Filing TP-128 and T776

Quebec rental property owners must file two forms: the federal T776 (Statement of Real Estate Rentals) with the CRA and the provincial TP-128 (Income and Expenses from the Rental of Immovable Property) with Revenu Québec. Both report gross rents, eligible expenses, and net rental income (or loss).

Co-owners (e.g., spouses who jointly own a plex) each report their proportional share of income and expenses. The filing deadline is April 30 for individuals. Keep all receipts for a minimum of 6 years—the CRA can audit any year within that window.

⚠️ CRA Audit Triggers and Tips

🚩 Consecutive rental losses — Reporting losses 3+ years in a row raises red flags

🚩 Personal use deductions — Claiming 100% of expenses on a property you partially occupy

🚩 Excessive repairs — Repair costs exceeding 50% of gross rental income

🚩 Round numbers — Claiming expenses in suspiciously round figures ($5,000, $10,000)

🚩 Below-market rent — Renting to family at below-market rates while claiming full deductions

Best practices: maintain a separate bank account for rental income and expenses, keep a logbook for travel to the property, photograph all repairs and renovations with dates, and hire an accountant experienced in rental property taxation. The cost of accounting ($300-$600/year) is itself deductible.

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