In Canada, mortgage interest on your own home is not tax deductible, unlike in the United States. It is deductible when the borrowed money is used to earn income: a rental property, the rented part of your home, investments, or a self-employed home office. This page sets out each case with an example and the records the CRA expects. It is part of WealthNorth’s guide to investment property financing; getting the mortgage itself is covered in rental property mortgages.
The basic rule
| Scenario | Interest Deductible? | CRA Basis |
|---|---|---|
| Mortgage on your principal residence | ❌ No | Personal expense |
| Mortgage on a rental property | ✅ Yes | Income-producing expense (T776) |
| Mortgage on a property used partly for rental | ✅ Proportional | Based on rental-use percentage |
| HELOC used to buy investments | ✅ Yes | Borrowed to earn income (Line 22100) |
| HELOC used to buy a rental property | ✅ Yes | Borrowed to earn rental income |
| HELOC used for personal expenses | ❌ No | Personal expense |
| Home office mortgage interest (self-employed) | ✅ Proportional | Business-use-of-home expense |
| Home office (salaried employee with T2200) | ❌ No | Mortgage interest is not an eligible employment expense, even with a T2200 |
The CRA’s conditions, from its interest deductibility folio (S3-F6-C1) and its line 22100 guidance:
- The borrowed money has to be used to earn income from a business or property, such as rent, interest or dividends; interest on money used for personal purposes isn't deductible.
- What secures the loan doesn't matter: a HELOC on your home used to buy a rental or investments can qualify.
- The deduction follows the current use of the money: if you sell the investment and spend the proceeds, the interest on that part generally stops being deductible.
- You have to be able to trace each borrowing to its income-earning use, so personal and investment draws mixed in one account are hard to support.
- If the only earnings an investment can produce are capital gains, the interest isn't deductible.
- Interest on money borrowed to contribute to an RRSP, TFSA, FHSA, RESP or RDSP isn't deductible.
- For shares with no stated dividend, the purpose test is likely met when the company is silent on dividends, but not when it says it doesn't and won't pay them.
Scenario 1: Rental property mortgage interest
If you own a property and rent it out, the mortgage interest is deductible against your rental income, reported on Form T776 (see how rental income is taxed).
What you can deduct
| Expense | Deductible? | Where to Report |
|---|---|---|
| Mortgage interest | ✅ Yes (interest only, not principal) | T776 Line 8710 |
| Property taxes | ✅ Yes | T776 Line 9180 |
| Insurance | ✅ Yes | T776 Line 8690 |
| Repairs and maintenance | ✅ Yes | T776 Line 8960 |
| Property management fees | ✅ Yes | T776 Line 8871 (see the property management guide) |
| Utilities (if you pay them) | ✅ Yes | T776 Line 9220 |
| Mortgage principal repayment | ❌ No | Not an expense |
| CCA (capital cost allowance) | ✅ Optional; recaptured if the sale price exceeds the undepreciated capital cost | T776 |
Example: Rental property deduction
| Item | Amount |
|---|---|
| Annual rental income | $24,000 |
| Mortgage interest (not principal) | $14,400 |
| Property tax | $4,200 |
| Insurance | $1,800 |
| Repairs | $2,000 |
| Total deductible expenses | $22,400 |
| Taxable rental income | $1,600 |
Without the mortgage interest deduction, you would pay tax on $16,000 of rental income instead of $1,600.
Important: Interest only, not principal
Your mortgage payment includes both principal and interest. Only the interest portion is deductible. Your lender provides an annual mortgage statement showing the interest and principal breakdown.
| Monthly Payment | Interest Portion | Principal Portion | Deductible |
|---|---|---|---|
| $2,200 | $1,200 | $1,000 | $1,200 |
Over the life of the mortgage, the interest portion decreases and the principal portion increases. Your deduction shrinks over time.
Scenario 2: Mixed-use property (part rental)
If you rent part of your home (e.g., a basement suite), you can deduct a proportional share of your mortgage interest. When you rent out part of the home you live in, you deduct the expenses that relate only to the rented area in full and a share of the expenses for the whole property, split by square metres or by the number of rooms you rent. The full rules for splitting expenses are in renting out part of your home.
How to calculate the rental portion
| Method | How It Works |
|---|---|
| Square footage | Rental area ÷ total area = rental percentage |
| Number of rooms | Rooms rented ÷ total rooms = rental percentage (less common) |
Example: Basement suite
| Factor | Amount |
|---|---|
| Total home area | 2,000 sq ft |
| Basement suite area | 600 sq ft |
| Rental percentage | 600 ÷ 2,000 = 30% |
| Annual mortgage interest | $18,000 |
| Deductible portion | $18,000 × 30% = $5,400 |
| At 40% marginal tax rate | $2,160 annual tax savings |
Also deductible at 30%: property taxes, insurance, utilities, repairs to common areas. Repairs specific to the rental suite are 100% deductible.
CCA warning for mixed-use properties
You can claim capital cost allowance (CCA) on the rental portion of your home, but the CRA treats a claim as a sign that part of the home has changed to an income-producing use, which can cost you the principal residence exemption on that portion when you sell. The rules for homes that are partly rented are in the principal residence exemption when you rent part of your home.
Scenario 3: HELOC used for investing (Smith Manoeuvre)
If you borrow against your home using a HELOC and invest the borrowed funds in income-producing assets, the HELOC interest is tax deductible.
| Component | Details |
|---|---|
| How it works | Reborrow mortgage principal via HELOC; invest in dividend-paying stocks/ETFs |
| Interest deductible? | ✅ Yes: borrowed to earn investment income |
| Where to report | Line 22100: Carrying charges and interest expenses |
| Documentation required | Records tracing each advance to an income-earning investment (a separate HELOC sub-account makes this much easier) |
| What qualifies | Investments that have a reasonable expectation of producing income (dividends, interest) |
Full guide: The Smith Manoeuvre: Make Your Mortgage Tax Deductible
Scenario 4: HELOC used to buy a rental property
If you take a HELOC on your principal residence and use those funds to purchase a rental property, the HELOC interest is deductible, because the borrowed money is used for income-producing purposes.
This is the CRA’s interest tracing rule in action: it doesn’t matter what property secures the loan. What matters is how the money is used.
| Situation | Loan Secured By | Funds Used For | Interest Deductible? |
|---|---|---|---|
| HELOC on home → buy rental property | Principal residence | Rental income | ✅ Yes |
| HELOC on home → buy investments | Principal residence | Investment income | ✅ Yes |
| HELOC on home → renovate home | Principal residence | Personal use | ❌ No |
| HELOC on home → pay off car loan | Principal residence | Personal use | ❌ No |
| Mortgage on rental → buy rental | Rental property | Rental income | ✅ Yes |
Scenario 5: Home office (self-employed)
If you are self-employed and use a dedicated portion of your home for business, you can deduct a proportional share of mortgage interest as a business expense.
Requirements
| Requirement | Details |
|---|---|
| Work space | The workspace is your principal place of business, or you use it only to earn business income and on a regular and ongoing basis to meet clients, customers or patients. |
| Self-employed | Must be self-employed (not incorporated: corporations have different rules) |
| Where to report | Form T2125: Business-use-of-home section |
Deductible expenses (proportional)
| Expense | Deductible Portion |
|---|---|
| Mortgage interest | Home office % |
| Property taxes | Home office % |
| Utilities (heat, electricity, water) | Home office % |
| Home insurance | Home office % |
| Repairs to office space | 100% |
| Repairs to common areas | Home office % |
| Mortgage principal | ❌ Not deductible |
Example: Self-employed home office
| Factor | Amount |
|---|---|
| Home office area | 200 sq ft |
| Total home area | 1,800 sq ft |
| Business-use percentage | 200 ÷ 1,800 = 11.1% |
| Annual mortgage interest | $16,000 |
| Deductible portion | $16,000 × 200 ÷ 1,800 = $1,778 |
Limits. The CRA’s other conditions for business-use-of-home expenses:
- Only the business part of costs such as heat, electricity, home insurance, cleaning, property taxes, mortgage interest and capital cost allowance is deductible; a renter deducts the part of the rent and expenses that relates to the workspace.
- The business part is worked out on a reasonable basis, such as the workspace's area divided by the home's total area.
- For rooms used for both business and personal living, the business part is also reduced by the hours a day used for business divided by 24, and by the part of the week or year the business runs.
- The deduction can't be more than the business's net income before it, so it can't create or increase a business loss.
- Amounts you couldn't deduct carry forward to the next fiscal period, as long as one of the workspace conditions is still met.
- If you claim capital cost allowance on the business part of your home, the capital gain and recapture rules apply to that part when you sell.
Scenario 6: Salaried employee working from home
If your employer requires you to work from home and provides a signed T2200 form, you can deduct a proportion of certain home expenses using the detailed method, but mortgage interest is not one of them, and the restrictions are tighter than for self-employed filers. (The temporary $2/day simplified flat-rate method ended after the 2022 tax year and is not available for 2026.)
Under the detailed method:
| Expense | Commission Employee | Salaried Employee |
|---|---|---|
| Mortgage interest | ❌ No | ❌ No |
| Rent | ✅ Yes | ✅ Yes |
| Utilities | ✅ Yes | ✅ Yes |
| Insurance | ✅ Yes | ❌ No |
| Property taxes | ✅ Yes | ❌ No |
Note: Salaried employees generally cannot deduct mortgage interest even with a home office. Commission employees can’t deduct it either; the deduction is available to self-employed individuals reporting on T2125.
Salaried employees can claim only utilities, internet, rent (if renting), and minor repairs under the home office deduction, using the detailed method.
CRA documentation and audit risk
| What to Keep | Why |
|---|---|
| Annual mortgage statement (interest vs principal breakdown) | Proves the interest amount claimed |
| T776 (rental) or T2125 (business) | Shows the calculation |
| Lease agreements with tenants | Proves rental income/expense |
| HELOC statements separated by purpose | Proves investment vs personal use |
| Investment purchase confirmations | Links borrowed funds to investments (Smith Manoeuvre) |
| Floor plan or measurement showing office/rental area | Supports proportional claim |
| T2200 (signed by employer) | Required for employee home office claims |
Claims that need extra support
| Claim | Why |
|---|---|
| Rental losses year after year | If your rental expenses are consistently more than the rent, the loss may be denied because the rental isn't considered a source of income. |
| One HELOC used for both investing and personal spending | Interest is deductible only on the part of the borrowing traced to an income-earning use, so each advance needs its own record |
| Claiming CCA on part of your home | Claiming CCA on the rented or business part means that part has changed use, which affects the principal residence exemption on it |
Summary: When mortgage interest is deductible
| Situation | Deductible? | How Much | Where to Report |
|---|---|---|---|
| Principal residence mortgage | ❌ | $0 | n/a |
| Rental property mortgage | ✅ | 100% of interest | T776 |
| Mixed-use property (part rental) | ✅ | Rental % of interest | T776 |
| HELOC → invest in stocks/ETFs | ✅ | 100% of HELOC interest | Line 22100 |
| HELOC → buy rental property | ✅ | 100% of HELOC interest | T776 |
| HELOC → personal use | ❌ | $0 | n/a |
| Home office (self-employed) | ✅ | Office % of interest | T2125 |
| Home office (salaried, T2200) | ❌ | $0 | T777 |
Related Resources
Sources
The figures and rules on this page come from these sources, last checked against them between September 26, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Expenses you can claim – Home office expenses for employees
- Canada Revenue Agency: Line 22100 – Carrying charges, interest expenses and other expenses
- Canada Revenue Agency: Income Tax Folio S3-F6-C1, Interest Deductibility
- Canada Revenue Agency: Rental Income
- Canada Revenue Agency: Business-use-of-home expenses