Selling a Rental Property in BC: Capital Gains, Recapture and Other Taxes

Selling a rental property can bring a tax bill with more than one part: the capital gain, the depreciation you claimed coming back as recapture, and sometimes other taxes. Here is how each part is worked out, with an example, so you can plan with your accountant before you list.

The short version

What gets taxed when you sell

Two things can show up on your return for the year you sell:

• A capital gain. If you sell for more than the property cost, you may have a capital gain, reported on Schedule 3 with the price split between the land and the building. As of October 2026, the Income Tax Act includes half of a capital gain in your income.
• Recapture. If you claimed capital cost allowance (CCA), the tax depreciation on the building, some or all of it may come back into your income, in full rather than at half.

For a property owned 365 days or more, the Canada Revenue Agency (CRA) says whether the profit is a capital gain or fully taxable business income is a question of fact.

Working out your capital gain

The gain is your proceeds, usually the sale price, minus your adjusted cost base (ACB) and your selling costs.

• Adjusted cost base. Usually what you paid, plus buying costs, such as the property transfer tax and legal fees, and capital improvements.
• Improvements, not repairs. A cost that improves the property beyond its original condition generally adds to your cost. A repair that simply restores it is usually deducted from your rental income for the year instead.
• Outlays and expenses. Selling costs, such as commissions, legal fees, surveyors' fees and advertising, come off the gain, not your other income.

With example figures: you bought a rental condo for $700,000, paid $13,500 in purchase costs and later spent $30,000 renovating the kitchen and bathroom, an improvement, so your ACB is $743,500. Over the years, you claimed $40,000 of CCA on the building. You sell for $1,050,000 and pay $35,000 in commission, legal fees and other selling costs.

• The capital gain. $1,050,000 minus $35,000 minus $743,500 is $271,500. Half of it, $135,750, is your taxable capital gain. The CCA doesn't reduce your ACB; it is dealt with separately.
• The recapture. If the building's share of the price, after its share of the selling costs, is at least its capital cost, all $40,000 of CCA comes back as recapture.
• The total. In that case, $175,750 is added to your income for the year of the sale. The tax depends on your other income.

Recapture and terminal losses

CCA lets you deduct the cost of the building, never the land, a little at a time. When you sell, the building comes out of its CCA class:

• One property, one class. A rental property acquired after 1971 with a capital cost of $50,000 or more goes in a separate class, so the result is worked out property by property.
• Recapture. The lesser of the building's proceeds, minus related expenses, and its capital cost comes off the class. If that leaves the undepreciated capital cost (UCC) below zero, the negative amount is recapture, reported on line 9947 of Form T776.
• Terminal loss. If the UCC is still positive and no property is left in the class at the end of the year, the balance is a terminal loss, reported on line 9948, and you can deduct the full amount.
• Losses on land and building. A loss on the building isn't a capital loss, but a loss on the land is, and only half of it can be deducted, against taxable capital gains. If the building sells for less than both its UCC and its capital cost and you also owned the land, special rules may restrict the terminal loss on the building and reduce the capital gain on the land.

If you lived there, or rented only part of it

Years the property was your principal residence can shelter part of the gain. I explain the exemption and its formula in Capital Gains and Your Home.

• A change in use counts as a sale. Each time you change the use of a property, for example when you move out and rent it, or move back in, CRA considers you to have sold it at fair market value.
• Elections can postpone that. Moving out, a subsection 45(2) election lets you keep designating the home as your principal residence for up to four years in most cases, if you claim no CCA. Moving back in, a subsection 45(3) election postpones the gain until you sell, unless CCA was claimed after 1984.
• Renting part of your home. Renting out a suite is usually a change in use of that part. The whole home generally keeps its status if the rental use is ancillary, there are no structural changes and no CCA is claimed; otherwise, you split the price and the ACB between the two parts when you sell.

If the home was ever your principal residence, report the sale on Schedule 3 and Form T2091(IND).

Other taxes that can apply

• BC's home flipping tax. If you sell less than 730 days after buying, the Province taxes the profit at up to 20%, falling to zero at 730 days, unless an exemption applies. It covers residential property generally and any owner, with its own return generally due within 90 days of the sale. See BC's Home Flipping Tax.
• The federal flipping rule. Since January 1, 2023, the profit on residential property, rental property included, owned for less than 365 consecutive days is fully taxable as business income, unless a life event such as a death, a separation or a serious illness applies.
• GST. Most sales of previously occupied homes are exempt. If you built the rental or substantially renovated it (generally, 90% or more of the interior removed or replaced), you may be a builder for GST purposes. A builder who rents it out for long-term residential use is generally treated as having sold and repurchased it once it is finished and first occupied, owing GST on its fair market value; a later sale is then generally exempt. See GST on New Homes in BC.
• Non-resident sellers. If you are a non-resident of Canada for tax purposes, you notify CRA before the sale or within 10 days after it, with payment or security, to get a certificate of compliance. A rental building, as depreciable property, also needs Form T2062A. Without a certificate, the buyer can withhold 25% of the proceeds, or 50% for depreciable property. See Selling as a Non-Resident.

Selling with tenants or vacant

A sale doesn't end a tenancy. The Province says the buyer becomes the new landlord on the same terms, and a landlord can't end a tenancy because they want to sell. If the buyer or a close family member will live there, the buyer asks you in writing, and you give a three-month notice generated through the Residential Tenancy Branch's web portal, with one month's rent as compensation. I explain the timing in Selling a Tenanted Home in BC.

Getting ready: records and planning

• Gather your records. Your purchase statement of adjustments, improvement invoices, the CCA you claimed each year and the dates you or your family lived there.
• Plan the split. Ask your accountant how to split the price between land and building; it affects the recapture or terminal loss.
• Payment over time. If part of the price will be paid to you in later years, you may be able to claim a reserve, which can spread the gain over up to five years.
• Plan for the bill. The gain and any recapture are generally taxed on your return for the year of the sale, so set aside part of your proceeds.

Questions sellers often ask me

How much of a capital gain on a rental property is taxable?

Half, as of October 2026, under section 38 of the Income Tax Act. A proposed increase to two thirds was cancelled in March 2025 and never became law.

What is recapture of capital cost allowance?

When the building's share of the price, after selling costs, exceeds its undepreciated capital cost, the difference, up to the CCA you claimed, generally comes back into your income as recapture, and it is fully taxable. No CCA claimed means nothing to recapture.

What if I sell my rental for less than I paid?

A loss on the land is a capital loss: half can be deducted against taxable capital gains of the same year, the three previous years or future years. The building can't have a capital loss; you may have a fully deductible terminal loss or, if you claimed CCA, still some recapture.

Does BC's home flipping tax apply to rental properties?

It can. It covers residential property sold less than 730 days after it was bought, whoever the owner is, unless an exemption applies. The return is separate from your income tax return.

Can I sell my rental property with the tenants still living there?

Yes. The tenancy continues, and the buyer becomes the landlord on the same terms. You can't end a tenancy just because you want to sell, but a buyer who will live there can ask you in writing to give notice.

Planning your sale? Read What It Costs to Sell a Home in BC and the BC selling process from listing to completion, or request a free home evaluation.

This article is general information, not tax advice. The rules come from the Income Tax Act, the CRA and the Province and were current at the time of writing; the example uses illustrative figures, so ask an accountant about your own sale. For CRA's guide, see Rental Income (T4036).