If you're selling the home you've lived in, the tax on the sale is usually nothing. If you're selling a rental, a second home, or a place you moved out of and rented, it can be tens of thousands of dollars, and the details decide how much. After the 2024 announcement to raise the inclusion rate and its cancellation in 2025, the rules for 2026 are the same ones that applied before: half of a capital gain is taxed at your marginal rate. This page does the math with 2026 federal and BC brackets, and explains the choices that can legally reduce it.
The short answer
| Sale in November 2026 | Gain after costs | Estimated tax |
|---|---|---|
| Home you lived in the whole time, held over a year | any | $0 (principal residence exemption) |
| Rental condo bought 2016 for $520,000, sold for $699,000, owner earns $110,000 | $129,826 | $25,198 |
| Same condo owned 50/50 with a spouse earning $60,000 | $129,826 | $21,141 |
| Home 2016 to 2021, then rented until 2026, no election | $129,826 | $6,160 |
| Same, with a 45(2) election filed | $129,826 | $0 |
Working out the gain
A capital gain is what you sold for, minus your selling costs, minus your adjusted cost base.
Your adjusted cost base is:
- the purchase price
- plus the costs of buying: property transfer tax, legal fees, and the inspection if it led to the purchase
- plus capital improvements
A capital improvement adds value or extends the life of the property: a new kitchen, a new roof, an added bathroom, new windows. Repairs and maintenance don't count, like repainting, fixing a leak, or replacing a broken appliance with the same thing. Keep receipts for everything you'd call an improvement. CRA can ask for them years later.
Selling costs are:
- real estate commission and the GST on it
- legal fees
- anything else you paid to make the sale happen
On a $699,000 sale with a typical 7% on the first $100,000 and 2.5% on the rest, commission plus GST and $1,200 of legal comes to about $24,300.
Mortgage payments, property taxes and strata fees aren't part of the cost base. On a rental, those are deductible against rental income each year instead.
The 50% inclusion rate, after the 2024 to 2025 back-and-forth
Only half of a capital gain is added to your taxable income. Budget 2024 proposed raising that to two-thirds for individuals' gains over $250,000 a year. The proposal was deferred, then cancelled in March 2025 before it ever took effect.
For 2026 sales, the inclusion rate is 50% on the whole gain, whatever its size. At BC's top combined rate of 53.5%, that means a capital gain is taxed at no more than 26.75%.
What a gain costs you at 2026 BC rates
The taxable half of your gain is added on top of your other income for the year, so it's taxed at your marginal rates. For 2026, the federal rates are 14%, 20.5%, 26%, 29% and 33%. BC's are 5.6%, 7.7%, 10.5%, 12.29%, 14.7%, 16.8% and 20.5%. BC raised its lowest rate from 5.06% to 5.6% in Budget 2026.
| Other income | Combined marginal rate | Effective rate on a capital gain |
|---|---|---|
| $50,000 | 19.6% | 9.8% |
| $100,000 | 28.2% | 14.1% |
| $120,000 | 38.29% | 19.1% |
| $150,000 | 40.7% | 20.35% |
| $200,000 | 45.8% | 22.9% |
| Over $265,545 | 53.5% | 26.75% |
That's why the same gain costs different people very different amounts. It's also why the year you sell in, and whose name is on title, can matter.
The principal residence exemption, properly
A home you ordinarily lived in can be designated as your principal residence for each year you owned it. Only one home per family unit can be designated in any year. The exempt share of the gain is:
(1 + years designated) ÷ years owned
The "plus one" covers the year you sell one home and buy another, so moving doesn't cost you a year.
You still have to report the sale. That means the designation on Form T2091 and the sale on Schedule 3 of your return, even when the whole gain is exempt. If you forget, CRA can accept a late designation but may charge a penalty of $100 for every month it's late, up to $8,000.
The exemption generally covers the home and up to half a hectare of land. It doesn't apply at all to homes sold within 365 days of purchase, unless a life-event exception applies. We cover that in the section on selling within two years.
If you own two properties you've lived in, such as a house and a cabin in the Okanagan, you choose which one to designate for the years you owned both. The usual approach is to designate the one with the higher gain per year of ownership. Because you can decide when you sell, it's worth running the numbers for both before you file.
Moving out and renting it: the most expensive mistake
When a home you lived in becomes a rental, the Income Tax Act treats you as having sold it at market value on the day it changed use, and bought it back at that value.
- The gain up to that date is covered by the principal residence exemption.
- The gain after it is taxable when you eventually sell.
In the default mixed example, the condo was bought in 2016, rented from 2021 when it was worth $640,000, and sold in 2026. The $95,100 gain to 2021 is exempt. The roughly $34,700 gain from 2021 to 2026 is taxable: about $6,160 for a $110,000 earner.
The 45(2) election changes that. Filed with your return for the year the use changed, it cancels the deemed sale, and lets you keep designating the property as your principal residence for up to four years while it's rented, sometimes longer after a work relocation.
In the example, owned 2016 to 2026 (11 years) and lived in 2016 to 2021 (6 years), four more years plus the "plus one" covers all 11. The whole gain becomes exempt and the tax goes to $0.
There are three conditions:
- You can't claim depreciation (CCA) on the property.
- You can't designate another home as your principal residence for those same years. It works best if you were renting yourself, or moved away for work, rather than buying another home.
- You should file it for the year you moved out. Late filing is possible in some cases, but don't count on it.
Talk to your accountant before you move out, not when you sell.
Rental property and depreciation
A rental that was never your home has no principal residence exemption. Half the gain is taxable.
If you claimed capital cost allowance (depreciation) on the building, it comes back as "recapture" when you sell. Recapture is 100% taxable, up to the amount you claimed. It's added to income at full rates, not the half rate, so claiming CCA mostly defers tax, and it rules out the 45(2) election if you ever lived there.
Many small landlords with mortgaged condos claim little or none, partly for these reasons and partly because CCA can't be used to create a rental loss. The calculator adds any CCA you enter as fully taxed income.
Selling within two years: two separate flipping rules
Federal rule. Since 2023, a gain on housing held less than 365 days is treated as business income. That means 100% taxable, not half, and the principal residence exemption isn't available. The exceptions are specific life events, such as death, a household addition, separation, personal safety, disability or illness, an eligible job relocation, involuntary job loss, insolvency, or destruction of the home.
BC rule. BC's home flipping tax, in force since January 1, 2025, is separate. It applies to sales within 730 days of purchase:
- 20% of the net gain within 365 days, sliding to zero at 730 days.
- A deduction of up to $20,000 if the property was your primary residence and you owned it at least 365 days.
- Life-event exemptions, which still require you to file a BC return within 90 days of the sale.
For example, a $700,000 home bought in January 2026 and sold for $760,000 in late October 2026 leaves a gain of about $20,600 after costs. A $110,000 earner would pay about $7,400 of income tax on it as business income, plus about $4,100 of BC flipping tax. That's more than half the gain. Our BC home flipping tax calculator covers the BC rules in detail.
Couples and title
A gain on a property owned 50/50 is split 50/50 between the owners. If one earns much less than the other, the split can save real money. In the rental example, a $110,000 earner alone pays about $25,198. Split with a spouse earning $60,000, the couple pays about $21,141.
Title isn't the whole story, though. If one spouse supplied all the money to buy the property, the attribution rules can tax the whole gain back to that spouse regardless of whose name is on title. The split works best where each owner genuinely contributed their share. Plan title with your lawyer and accountant when you buy, not when you sell.
Losses, non-residents, and timing
Losses. A loss on your own home is a loss on personal-use property. It isn't deductible. A capital loss on a rental or investment property can offset capital gains in the same year, or be carried back three years or forward indefinitely.
Non-residents. Non-residents selling Canadian real estate must notify CRA and get a clearance certificate under section 116. Until they do, the buyer's lawyer holds back a large part of the price, commonly 25%, and more on some rental property. Start the process as soon as you list.
Timing. The sale falls in the tax year of the completion date, not the date you accepted the offer. If your income will be much lower next year, perhaps because of retirement or parental leave, completing in January instead of December can move the gain into lower brackets. Other things can also soften a large gain:
- RRSP contributions in the year of sale
- charitable donations
- a capital gains reserve, where you finance part of the price for the buyer and spread the gain over up to five years
Very large gains can also trigger the alternative minimum tax, so get advice first.
Mistakes we see with capital gains on property
Not reporting the sale of a principal residence. It's exempt, but you still have to designate it. Late designations can cost up to $8,000.
Moving out and renting without thinking about 45(2). It's often the difference between no tax and a five-figure bill.
Claiming depreciation on a rental you might move back into. It gets recaptured at full rates and rules out the election.
Throwing out renovation receipts. Every dollar of documented improvement reduces the gain.
Assuming a quick sale of your own home is tax-free. Under 365 days, the federal rule removes the exemption. Under 730 days, BC's flipping tax can apply.
Reading about the two-thirds inclusion rate. It was cancelled. For 2026 it's 50%.
Questions people ask us
How is the principal residence exemption calculated?
The exempt share of the gain is (1 + the number of years you designate the home as your principal residence) divided by the number of years you owned it, capped at 100%. A couple who owned a home for 10 years and lived in it for 7 exempts 8/10 of the gain. You must report the sale and designation on your tax return, even when the whole gain is exempt.
Do I pay capital gains tax when I sell my house in BC?
Not if it was your principal residence for every year you owned it and you held it at least 365 days. You still have to report the sale and designate the home on your tax return. Rentals, second homes and homes you moved out of can be taxable.
What is the capital gains inclusion rate in 2026?
50%. Half of your gain is added to taxable income. The proposed increase to two-thirds was cancelled in March 2025.
How much tax will I pay on a $100,000 capital gain in BC?
It depends on your other income. $50,000 is added to your taxable income. For someone earning $110,000 before the sale, that's roughly $19,000 to $20,000 at 2026 federal and BC rates. For someone earning $50,000, it's about $13,500.
What can I deduct from the capital gain on a property?
The costs of buying, including property transfer tax and legal fees. The costs of selling, including commission, GST on commission and legal fees. And capital improvements, such as renovations that add value or extend the property's life. Ordinary repairs, mortgage interest, property tax and strata fees aren't part of the calculation.
What happens if I rent out my home and sell it later?
Changing a home to a rental counts as selling it at market value on that date. The gain up to then is exempt, and the gain after is taxable. Filing a 45(2) election cancels that and lets you keep designating it as your principal residence for up to four years while it's rented, as long as you claim no depreciation and don't designate another home for those years.
Does the flipping rule apply if I sell my home within a year?
Yes. The federal rule treats the gain as fully taxable business income with no principal residence exemption, unless a life event applies. BC's home flipping tax can also apply to sales within two years, at up to 20% of the gain.
Can I split the capital gain with my spouse?
If you both own the property and each contributed to it, the gain is split by ownership share, and each of you is taxed at your own rates. If one spouse provided all the money, attribution rules may tax the whole gain to that spouse.
Is a loss on selling my home deductible?
No. A loss on your own home is a loss on personal-use property. A capital loss on a rental or investment property can offset other capital gains.
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