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Sell a rental property for more than it cost you and the profit is a capital gain, reported on Schedule 3. On a $600,000 sale of a property that cost $400,000, with $20,000 of selling costs, the gain is $180,000, and an Ontario owner with $80,000 of other income owes about $34,849 of extra tax on it.
How is a rental property capital gain worked out?
Start with what you got: the sale price. Subtract your adjusted cost base, which is what you paid plus buying costs and improvements, and subtract the costs of selling. What’s left is the gain. The CRA says every sale has to go on Schedule 3, and it points to Guide T4037 for capital gains and Guide T4036 and Form T776 for rental income.
Only part of the gain is taxed. For 2026 that part is one half, though we couldn’t find a CRA page that states the 2026 figure in one line, so check it before you file. The plan to raise it to two-thirds was cancelled in a release from the Prime Minister’s office on 21 March 2025.
| Line | Example amount |
|---|---|
| Sale price | $600,000 |
| What you paid (adjusted cost base) | $400,000 |
| Selling costs | $20,000 |
| Capital gain | $180,000 |
| Half added to income | $90,000 |
What does the tax come to?
The capital gains tax calculator adds the taxable half to your other income and compares. With $80,000 of other income in Ontario, the extra tax is $34,849, which is 19.4% of the gain. You keep $145,151.
Move the same sale to Alberta and the extra tax is $30,608, or 17.0%. Keep Ontario but raise your other income to $150,000 and it becomes $42,792, or 23.8%. Your other income changes the answer more than most people expect, because the gain lands on top of it.
That’s why the timing of a sale matters. A year with little other income (say, between jobs or after you retire) pushes less of the gain into the higher steps.
Can you have a loss on a rental property?
Not always. If the property is depreciable, the CRA page says you can’t have a capital loss when you sell depreciable property. A terminal loss is possible instead, and it follows its own rules.
Claiming capital cost allowance on the building during the years you rented it has a price at sale. The CRA’s pages describe recapture and terminal loss, and they work out separately for each rental property that sits in its own class. Our calculator doesn’t model them, so on a property where you claimed allowance, the real bill can be higher than the figure above. Read Guide T4036 before you rely on it.
What if the place used to be your home?
Then you’re in change-of-use territory. The CRA treats you as having sold the property at fair market value and bought it back for the same amount when you start renting it out. You can use the principal residence exemption to bring the gain on that deemed sale to nil, but you have to report it in the year of the change.
The CRA also says that for land, your cost is the fair market value on the day the use changed, and that goes on line 9923 of Form T776. If only part of the home was rented, you split the price and cost on a reasonable basis, such as square metres or rooms.
If you owned the place less than 365 consecutive days, the CRA says it may count as a flipped property. We couldn’t confirm what that does to your tax here, so read the CRA page on it.
Mistakes that cost money
Forgetting the selling costs is one. The CRA lists real estate agent commissions as outlays and expenses on Schedule 3, and they cut the gain.
Another is treating the cash you walk away with as the gain. The home sale proceeds calculator shows what cash you’re left with after the mortgage and costs, which is a different question from the tax.
And don’t forget what comes before the sale. The rental income tax calculator covers the yearly rent, and the rental property calculator shows how the return builds up over a holding period.
Where the numbers come from
The reporting rules come from the Canada Revenue Agency’s pages on selling and changing the use of a rental property, read on 30 September 2026. The tax figures come from our capital gains calculator, which uses 2026 federal and provincial rates and one half of the gain as taxable. This site has no link with the CRA.
Frequently asked questions
How much of a rental property gain is taxable?
Half of it, on our 2026 figures. We couldn't find a CRA page that states the 2026 rate in one line, and the increase to two-thirds was cancelled on 21 March 2025.
Where do I report the sale of a rental property?
On Schedule 3, Capital Gains (or Losses). Rental income itself goes on Form T776.
Can I claim a capital loss on a rental building?
The CRA says you can't have a capital loss on depreciable property. A terminal loss may be possible instead.
What happens if I turn my home into a rental?
The CRA treats it as a sale and repurchase at fair market value. The principal residence exemption can bring the gain on that deemed sale to nil.
Do selling costs reduce the gain?
Yes. The CRA says agent commissions go on Schedule 3 as outlays and expenses, and they cut the gain.
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Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.