Capital Cost Allowance for Rental Property
Capital cost allowance (CCA) is a tax deduction for eligible rental-property capital costs, such as a building or appliances. It is different from deducting a current repair or operating expense. CRA: rental-property CCA
Selected federal CCA classes
Classes 1, 3, 6 and 8 generally use a declining-balance calculation: the ordinary rate applies to the class’s remaining tax balance, or UCC, with applicable adjustments—not to the property’s current market value. First-year rules and other restrictions can change the deduction. The table does not determine an asset’s class or its first-year allowance. Income Tax Regulations, paragraph 1100(1)(a) and subsection 1100(2)
| Property or class | Ordinary rate | Main distinction |
|---|---|---|
| Land | Not depreciable | Separate the land cost from the depreciable building. |
| Class 1 | 4.00% | Most buildings acquired after 1987, unless another class or special provision applies. |
| Class 3 | 5.00% | Qualifying older acquisitions and transitional cases. A building's age alone does not establish this class. |
| Class 6 | 10.00% | Certain frame, log or stucco-on-frame buildings, including qualifying pre-1979 acquisitions. Construction material alone does not establish eligibility. |
| Class 8 | 20.00% | Furniture, appliances and qualifying equipment not included in another class. |
A condominium unit normally follows the class of its building. The purchase price may also include land or other assets with different treatment. CRA: rental classes · CRA: classes of depreciable property
Purpose-built rental housing. Enacted federal rules provide an additional allowance of 6.00% of UCC for qualifying Class 1 property, bringing the ordinary combined rate to 10.00%. Construction or a qualifying commercial-to-residential conversion must begin after April 15, 2024 and before 2031, with the property available for use before 2036. Unit-count, rental-use and separate-class conditions also apply; this is not a general 10.00% rate for every rental home or condominium. Income Tax Regulations, paragraph 1100(1)(a.4) · Definitions in subsection 1104(2)
First-year treatment. The first-year deduction may differ from the amount suggested by the ordinary annual rate. Enacted temporary CCA enhancements apply to qualifying reaccelerated investment incentive property (RIIP) acquired on or after January 1, 2025 and available for use before 2034. Eligible depreciable rental assets can qualify, but the dates alone are not sufficient: acquisition history, rollover and non-arm’s-length rules, and class exclusions also matter. Income Tax Regulations, subsection 1104(4.01) · CRA: CCA folio, Important notice
Scope and reporting
This reference covers selected federal CCA classes, the claim limit, undepreciated capital cost (UCC), co-ownership and changes in a property’s use. The individual owners discussed here report federal rental income using Form T776. In Québec, they use Form TP-128-V or an equivalent rental-income statement. Federal rental reporting · Québec rental reporting
Capital cost, UCC and the amount claimed
| Amount | Meaning |
|---|---|
| Capital cost | The tax cost of the depreciable property, including applicable acquisition costs and capital additions. It is not the mortgage balance. |
| Undepreciated capital cost (UCC) | The remaining tax balance of a class after the relevant additions, dispositions, deductions and other adjustments. It is not a property valuation. |
| Available CCA before the rental-loss restriction | The maximum calculated under the applicable asset and class rules before applying the rental-loss restriction. Other restrictions may further reduce the deductible amount. |
| CCA claimed | The amount actually deducted for the year, which may be less than the available amount. |
Land and building costs are separated when only the building is depreciable. A capital addition increases the relevant tax cost rather than becoming an ordinary current expense merely because it was paid during the year. CRA: capital cost and basic CCA information
For a continuing class, the usual balance calculation can be summarized as:
Opening UCC + capital additions − amounts deducted for dispositions ± other tax adjustments − CCA claimed = closing UCC.
For each asset disposed of, the amount deducted from UCC is generally the lesser of two amounts: its capital cost or its proceeds after related selling costs. Proceeds above capital cost do not further reduce UCC through that adjustment and may give rise to a separate capital gain. This is a summary, not the full statutory formula: special disposition rules can change the treatment. Closing UCC normally becomes the following year’s opening balance, while recapture and terminal-loss cases require their own treatment. Income Tax Act, subsection 13(21) · CRA: CCA chart instructions, columns 5 and 24
How much CCA can be claimed?
The asset and class rules establish a maximum CCA amount. Applicable restrictions may reduce that maximum. The owner can then claim any amount up to the permitted limit, including zero. Claiming less leaves a higher UCC balance; it does not create a separate balance of unused annual CCA. CRA: CCA folio, paragraph 1.15
For ordinary rental-property income, CCA cannot create or increase a loss from the taxpayer’s rental properties considered together. Where there is more than one rental property, the rental results are combined before applying this restriction, even when the assets fall in different classes. CRA: amount of CCA that can be claimed
Example — two properties, one combined-income limit
| Rental income or loss before CCA | Amount |
|---|---|
| Property A | $8,000.00 |
| Property B | ($3,000.00) |
| Combined rental income before CCA | $5,000.00 |
Assume the applicable class rules otherwise permit total CCA of $9,000.00 and there are no other relevant adjustments. The combined rental-income restriction limits the total claim in this example to $5,000.00. Keeping separate asset schedules does not remove that restriction. Income Tax Regulations, subsection 1100(11)
Co-ownership: separate UCC records and CCA claims
This section assumes ordinary direct co-ownership, not a partnership. Co-ownership alone does not establish a partnership; whether a partnership exists depends on the facts and the applicable provincial or territorial law. CRA: rental-property ownership
For direct co-ownership outside a partnership, each owner has their own CCA claim and UCC history for their interest in the property. Co-owners may claim different amounts within their respective limits, so equal ownership shares can have different UCC balances. Income Tax Act, paragraph 20(1)(a) · Subsection 13(21) · Income Tax Regulations, paragraph 1100(1)(a)
Example — equal interests, different annual claims
Two unrelated direct co-owners each own 50% of a wholly rented building and are not carrying on business in partnership. Each has opening UCC of $180,000.00 in the relevant class. A $20,000.00 qualifying capital addition is shared equally. There are no dispositions, attribution issues, ownership transfers or other adjustments. Assume the claims shown are within each owner's permitted limit.
| UCC record | Owner A | Owner B |
|---|---|---|
| Opening UCC | $180,000.00 | $180,000.00 |
| Each owner's share of the capital addition | $10,000.00 | $10,000.00 |
| CCA claimed | ($5,000.00) | $0.00 |
| Closing UCC | $185,000.00 | $190,000.00 |
This illustrates the balance after the chosen claim, not how to calculate the maximum first-year allowance on the addition. The next year’s records begin with each owner’s closing UCC.
In a partnership, the CCA calculation occurs at the partnership level before the resulting income is allocated to partners. That is a different reporting arrangement. Income Tax Act, section 96
Recapture, terminal loss and capital gain
These are different outcomes, not alternative names for the annual CCA claim.
| Amount | General treatment |
|---|---|
| Recaptured CCA | Previously deducted CCA that must be included in income, as determined by the calculation for the class. |
| Terminal loss | A remaining deductible class balance when no property remains in the class and the terminal-loss conditions are met. |
| Capital gain | A separate disposition calculation using the applicable proceeds and adjusted cost base. It is not calculated simply by subtracting UCC from the selling price. |
A sale can produce both a capital gain and CCA recapture. Selling one asset does not automatically create a terminal loss when other property remains in its class. Separate-class and special disposition rules can matter. CRA: Rental Income, capital cost allowance chapter
A terminal loss is a different deduction from annual CCA. When its conditions are met, it can create a rental loss; annual CCA cannot create or increase a loss from the taxpayer’s rental properties considered together. Form T776 reports recapture, terminal loss and the annual CCA claim separately. CRA: completing Form T776 · CRA: claim limits
For direct co-owners, these amounts reflect each owner’s interest and CCA history. Once an amount has been calculated for an owner’s share, no further allocation by ownership percentage is made. CRA: completing Form T776
Personal use, principal residence and change of use
CCA relates to the income-producing portion of eligible property. The allocation depends on how each asset is used: the allocation for an appliance used only in a tenant’s unit may differ from the allocation for the building as a whole. Changes between personal and rental use can also trigger tax calculations even without a sale. CRA: Rental Income
| Situation | CCA connection |
|---|---|
| A home is converted to rental use and a subsection 45(2) election applies | If CCA is claimed on the property, the election is considered rescinded from the first day of the year for which CCA is claimed. CRA folio, paragraph 2.48 |
| A rental property becomes a principal residence and a subsection 45(3) election is considered | The election is unavailable if CCA on the property was allowed to the taxpayer, their spouse or common-law partner, or a trust of which either is a beneficiary, for a tax year ending after 1984 and on or before the change-of-use date. CRA folio, paragraph 2.55 |
| Rental use remains ancillary to the home's main residential use | CRA generally does not apply the change-of-use deemed disposition and continues to treat the entire property as a principal residence when the income-producing use is ancillary to its main residential use, no structural change is made and no CCA is claimed on the property. CRA folio, paragraph 2.59 |
These are distinct rules. Not claiming CCA does not by itself make an entire duplex eligible for the principal-residence exemption. Nor does a CCA claim automatically mean that every part of a property's gain loses all possible exemption. The use history and the applicable conditions matter. CRA: Principal Residence folio, paragraphs 2.48, 2.54–2.60.1
A change of use can also have special CCA capital-cost rules. The property's market value on the change date is not automatically the amount to enter as opening UCC. Income Tax Act, subsection 13(7)
Québec reporting
The discussion above follows the federal rental-income and CCA framework used with T776. Québec uses Form TP-128-V or an equivalent rental-income statement. The provincial calculation must reflect the applicable Québec rules and claim history; a federal result is not, by itself, confirmation of the Québec amount. Revenu Québec: rental income, line 136 · TP-128-V
The February 2026 edition of Revenu Québec’s Capital Cost Allowance Guide excludes legislative amendments announced after October 31, 2025. Revenu Québec: Capital Cost Allowance Guide
Important limitations
This reference covers selected issues in ordinary rental-property situations. It is not a complete CCA schedule or an individual tax determination. Asset classification, acquisition history, available-for-use dates, personal use, ownership, elections and other restrictions can change the result. Detailed rules for short-term rentals, corporate arrangements and transfers are outside its scope. The content is for educational purposes and does not provide tax or other professional advice. Errors, omissions and changes in rules may affect how the information applies.
Related Articles
Taxable Income Explained — How rental income fits into the broader taxable-income calculation.
Sources and Further Reading
Selected starting points are listed below. Additional source links accompany the relevant sections.
Rental-property rules: CRA rental-property CCA, CRA: classes of depreciable property, claim limits, CCA chart instructions, and CRA General Discussion of CCA folio.
Tax records, ownership and special allowances: Income Tax Act, section 13, section 20, section 96, Income Tax Regulations, section 1100, and section 1104.
Home use and Québec: CRA Principal Residence folio, Revenu Québec TP-128-V, and Québec Capital Cost Allowance Guide — February 2026 edition.