Explained
Deducting mortgage interest on a rental property (T776 line 8710)
The deductible amount is the interest, never the payment. On an ordinary rental mortgage that is about two-thirds of what leaves your account — and the share falls every year you hold it.
Written by Hermann Gael Nang-Song · Last reviewed August 25, 2026Founder of LoonieLodge Inc., and author of the Canadian mortgage engine this site runs on.
Line 8710 takes interest, and only interest
On form T776, Statement of Real Estate Rentals, line 8710 is "interest and bank charges". Your mortgage payment is not an expense: it is two things stapled together, and only one of them is deductible. The interest portion is the cost of borrowing and comes off your rental income. The principal portion is buying an asset, and it does not.
The authority is section 20(1)(c) of the Income Tax Act, which allows interest on borrowed money used for the purpose of earning income. It is the *use* of the money that matters, not the security behind it — which is why interest on a loan secured by your home but used to buy a rental is generally deductible, and interest on a loan secured by the rental but used to buy a car generally is not.
Your annual mortgage statement often makes this harder rather than easier: many show the total paid and the closing balance without splitting the year's payments into their two halves. The split is exactly what an amortization schedule produces and exactly what a bank statement frequently omits.
The share falls every year, and that surprises people
Early in an amortization most of each payment is interest, so the deductible share is high. As the balance falls, the interest portion shrinks and the principal portion grows — the payment stays the same and the deductible fraction of it declines, year over year, for the life of the loan.
The table below shows the first four years of an ordinary rental mortgage. The deduction falls in both dollars and share, on identical payments. A landlord budgeting from last year's figure will be slightly wrong every year, always in the same direction.
Two further things the arithmetic does not decide for you. If the property was a rental for only part of the year, only that part's interest is deductible, and the dates are yours to assert — nothing in a schedule knows when a property became a rental. And where a property is partly personal-use, the interest is apportioned on a reasonable basis, which is a judgement rather than a calculation.
Worked example
Four years of one rental mortgage
A $500,000.00 mortgage at 4.50% over 25 years, paying $2,536.75 a month from January. The payment never changes; what it is made of does.
| Year | Interest (line 8710) | Principal | Deductible share |
|---|---|---|---|
| 2026 | $20,246.28 | $10,194.68 | 66.51% |
| 2027 | $21,602.12 | $11,606.20 | 65.05% |
| 2028 | $21,073.98 | $12,134.34 | 63.46% |
| 2029 | $20,521.79 | $12,686.53 | 61.80% |
The same $30,440.96 leaves the account each year, and the deductible part of it falls from 66.51% to 61.80% across four years. Figures are the schedule's, not a lender statement's — confirm against your own annual statement, and take the split from your accountant rather than from a calculator.
Deduct the interest line from an amortization schedule, not the payment total from your bank. If your annual statement does not separate the two, that separation is the number you are missing.
Run it on your own numbers
The same arithmetic, on the figures from your own mortgage. No account, and nothing you type is stored.
Sources
Primary sources, named. Where a figure comes from a statute we cite the section, because the section is what your lender's lawyer will read.
- Canada Revenue Agency — T776, Statement of Real Estate Rentals
- Canada Revenue Agency — T4036, Rental Income (line 8710, interest and bank charges)
- Income Tax Act, s. 20(1)(c) — interest on borrowed money used to earn income
Written and maintained by the author of the mortgage engine this site runs on, and reviewed against the sources named below. LOONIELODGE does not arrange mortgages, takes no commission from lenders, and nothing here is ranked or recommended because somebody paid for it.
Educational and informational only — not licensed mortgage, financial, legal or tax advice. Every lender's contract governs its own mortgage, and the figures here are estimates from stated assumptions rather than quotes. Confirm anything you intend to act on with your lender and a licensed professional.
Last reviewed August 25, 2026
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