Real Estate Investment Tax Basics

The Principal Residence Exemption fully shields any gain on the sale of your primary home from capital gains tax, provided you've designated it as your principal residence for every year you owned it. This exemption does not apply to a rental or investment property.

When you sell a rental property for more than you paid (adjusted for capital improvements and selling costs), the profit is a capital gain. As of 2026, 50% of that gain is included in your taxable income and taxed at your marginal rate — this inclusion rate was the subject of a proposed increase in 2024 that was ultimately cancelled in 2025, so it's worth confirming the current rate hasn't changed again by the time you're planning a sale.

Rental income itself is taxable annually as you earn it, but many expenses are deductible against that income: mortgage interest (though not principal repayment), property tax, insurance, maintenance and repairs, property management fees, and capital cost allowance (depreciation) on the building — though claiming CCA has its own trade-offs worth understanding with an accountant before using it.

This is genuinely accountant territory, not DIY territory, once real money is involved — the interaction between CCA, capital gains, and your overall tax situation is easy to get wrong in ways that cost more than the accountant's fee would have.