A real estate investor owns a rental property that generates $2,000 monthly rent. Which of the following expenses can be deducted for tax purposes?
Correct Answer
D) Property taxes, insurance, repairs, mortgage interest, and depreciation
Rental property owners can deduct reasonable expenses including property taxes, insurance, repairs and maintenance, mortgage interest, property management fees, advertising, and capital cost allowance (depreciation). However, mortgage principal payments and capital improvements are not deductible.
Why This Is the Correct Answer
Option D correctly identifies all major categories of deductible rental property expenses under Canadian tax law. The Income Tax Act allows deduction of current expenses incurred to earn rental income, including property taxes, insurance, repairs and maintenance, mortgage interest, and capital cost allowance (depreciation). These are considered reasonable expenses necessary for generating rental income. The CRA specifically permits these deductions as they represent the cost of doing business in the rental property sector, provided they are reasonable and directly related to earning rental income.
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