Selling a Rental Property in Québec: Tax Guide 2026

Short answer When you sell a rental property in Québec, you usually report two things on both your federal and Québec returns: a capital gain, of which one-half is taxable in 2026 (the proposed increase to two-thirds was cancelled in March 2025), and a recapture of the capital cost allowance (CCA) you claimed on the building, which is taxed in full as rental income. If the building sells for less than its undepreciated capital cost, you may have a terminal loss instead, but a special rule can reduce it when the land is sold at a gain. You split the price between land and building, subtract selling costs, can spread the gain over up to five years with a reserve if the buyer pays you over time, and can shelter the part of a plex you lived in with the principal residence exemption. GST and QST generally do not apply to the sale of a used residential building. Non-resident sellers must notify the CRA and Revenu Québec within 10 days.

Selling a duplex, triplex or condo you rented out is often a landlord’s largest taxable event, and the bill is rarely just "half the profit." Most Québec sellers report a capital gain and a recapture of depreciation on two returns, and sometimes a terminal loss, a reserve, a principal residence claim or non-resident withholding. This guide explains each rule for an individual selling in 2026, with the federal and Québec forms, worked examples and common mistakes. It is general information; the figures in the examples are illustrative.

How is the sale of a rental property taxed in Québec?

Québec has its own income tax, but for the sale of real estate it follows the federal rules almost line for line: the same capital gain calculation, the same inclusion rate, the same recapture and terminal loss mechanics, and the same principal residence exemption. You simply report the sale twice, once to the Canada Revenue Agency (CRA) on your T1 return and once to Revenu Québec on your TP-1 return. Depending on the numbers, a sale can produce up to three tax results:

Result	When it arises	How it is taxed
Capital gain	Net selling price of the land or building is more than its adjusted cost base (ACB)	One-half is included in income (the taxable capital gain)
Recapture of CCA	Building sells for more than its undepreciated capital cost (UCC), up to its original cost	100% included in rental income for the year of sale
Terminal loss	Building sells for less than its UCC and no property is left in the class	100% deductible from income, subject to the land-and-building rule

Land is not depreciable, so it produces only a capital gain or loss. A building can produce a gain and a recapture at once, but a loss on depreciable property is never a capital loss, only a terminal loss.

One threshold question comes first. These rules assume you held the property as a long-term investment. If you bought it to resell quickly, the profit may be business income, taxed in full. Since 2023, a residential property (including a rental unit) owned for less than 365 consecutive days is a "flipped property" under both federal and Québec rules, and the whole profit is business income unless a listed life event, such as a death, a separation, a new job or a birth, explains the sale.

What is the capital gains inclusion rate in 2026?

For individuals, the inclusion rate is one-half. The federal government had proposed raising it to two-thirds on the portion of annual gains above $250,000, first from June 25, 2024 and then from January 1, 2026, but the increase was never enacted and was cancelled on March 21, 2025. Revenu Québec applies the same 50% rate: its pages on selling a property state that, generally, half (50%) of a capital gain is taxable. A sale that closes in 2026 is therefore taxed on half the gain at both levels.

How do you calculate the capital gain on a rental property?

The formula is the same at both levels: proceeds of disposition − adjusted cost base − outlays and expenses of sale = capital gain. The ACB is what you paid for the property plus acquisition costs (legal and notary fees, the welcome tax, inspection) and capital improvements over the years, such as a new roof, an extension or a full kitchen replacement. Ordinary repairs you already deducted against rent do not go into the ACB.

Allocating the price between land and building

For every real property that includes land and a building, the CRA requires you to determine how much of the selling price relates to the land and how much to the building, and to report them separately on Schedule 3. The same split is needed at purchase. A reasonable allocation is usually based on the municipal assessment (évaluation foncière) or an appraiser’s report, applied to the actual price. The split matters because the building portion drives recapture and the land portion does not. An allocation that is out of line with the assessment, especially one that pushes value into the land to avoid recapture, is a common audit point.

Outlays and expenses you can subtract

Selling costs reduce your proceeds, not your other income. The CRA lists fixing-up expenses, finder’s fees, commissions, broker’s fees, surveyor’s fees, legal fees, transfer taxes and advertising costs. In practice for a Montréal sale, that means the real estate broker’s commission (and the GST and QST on it), the seller’s notary or lawyer fees and other legal costs of the sale. Split selling costs between land and building in the same proportion as the price.

What is recapture of depreciation (CCA) when you sell?

Most rental buildings acquired after 1987 are in Class 1, with a CCA rate of 4% a year on a declining balance. Each year you claimed CCA, you lowered your taxable rental income and the UCC of the class. When you sell, you subtract from the UCC the lesser of the building’s net proceeds and its original capital cost. If the result is negative, that negative amount is recapture: the CCA you claimed was more than the building actually lost in value, so it comes back into income at 100%. Federally, it goes on line 9947 of Form T776 in Part 4; in Québec, on your rental income form (TP-128-V).

Because recapture is fully taxable, arrives in a single year and cannot be spread with a reserve, it often pushes the seller into the top bracket.

Terminal loss and the land-and-building rule

If the building sells for less than the UCC and no other property remains in the class (each rental property costing $50,000 or more is placed in a separate class), the shortfall is a terminal loss, fully deductible. But subsection 13(21.1) of the Income Tax Act prevents a seller from booking a terminal loss on the building while reporting a capital gain on the land in the same sale. When the building’s proceeds are below both its UCC and its capital cost and the land is sold in the same year, the building’s proceeds are deemed to be the lesser of:

the combined fair market value of land and building, minus the lesser of the land’s fair market value and its cost; and
the greater of the building’s fair market value and the lesser of its UCC and its capital cost.

The land’s proceeds become the total price minus the building’s deemed proceeds. The CRA summarizes the effect: the rule "may restrict the terminal loss on the building and reduce the capital gain on the land."

Example 1: a terminal loss absorbed by the land gain

You sell a rental property for a net $700,000. The building’s capital cost is $340,000 and its UCC is $300,000. The land cost $250,000. You and the buyer agree, based on the assessment, that the building is worth $200,000 and the land $500,000.

Step	Calculation	Result
Terminal loss before the rule	$300,000 UCC − $200,000	$100,000
Land gain before the rule	$500,000 − $250,000	$250,000
Test (1)	$700,000 − lesser of $500,000 and $250,000	$450,000
Test (2)	Greater of $200,000 and lesser of $300,000 and $340,000	$300,000
Deemed building proceeds (lesser of the two)		$300,000, so no terminal loss
Land proceeds and gain	$700,000 − $300,000 = $400,000; $400,000 − $250,000	$150,000 capital gain ($75,000 taxable)

Instead of a $100,000 deduction and a $125,000 taxable gain, you have no deduction and a $75,000 taxable gain: the $100,000 loss now saves tax at the capital gains rate, not your full rate.

Example 2: selling a fully rented triplex in 2026

Marc bought a triplex in Rosemont in 2012 for $500,000, including acquisition costs: $150,000 for the land and $350,000 for the building. He claimed $90,000 of CCA over the years, so the UCC is $260,000. In 2026 he sells for $900,000 and pays $48,000 in commission and notary fees. The assessment at sale puts 35% of the value in the land.

Item	Land (35%)	Building (65%)	Total
Selling price	$315,000	$585,000	$900,000
Selling costs, same split	$16,800	$31,200	$48,000
ACB / capital cost	$150,000	$350,000	$500,000
Capital gain	$148,200	$203,800	$352,000
Taxable capital gain (50%)			$176,000
Recapture: $260,000 UCC − $350,000 (lesser of cost and net proceeds)		$90,000	$90,000
Total added to 2026 income, federal and Québec			$266,000

As a check, net proceeds of $852,000 minus total cost of $500,000 give the same $352,000 gain. The $90,000 recapture is taxed in full; only the $352,000 gain gets the 50% inclusion. A sale of this size usually triggers federal and Québec instalment requirements for the following year (see our guide to tax instalments in Québec).

Can you defer the tax? The capital gains reserve

If part of the price is payable after the end of the year, for example because you take back a mortgage (a balance of sale, or solde de prix de vente) from the buyer, you can claim a reserve and report the gain as you are paid. Revenu Québec’s IN-120 sets out the five-year formula used at both levels. The reserve for a year is the lesser of:

A = capital gain × (proceeds not yet payable at year-end ÷ total proceeds); and
B = capital gain × (4 − C) ÷ 5, where C is the number of earlier years counting the year of sale (0 in the year of sale, 1 the next year, and so on).

The B limit means at least one-fifth of the gain is reported each year, so the whole gain is taxed within five years. You must be a Canadian resident, it is not available on a sale to a corporation you control, and federally you file Form T2017.

Example 3: a balance of sale on Marc’s triplex

Suppose Marc takes back $450,000 of the $900,000 price, payable in equal parts over three years. In 2026, A = $352,000 × $450,000 ÷ $900,000 = $176,000 and B = $352,000 × 4 ÷ 5 = $281,600. He claims the lesser, $176,000, and reports $176,000 of gain in 2026 instead of $352,000. In 2027, $300,000 is still owed: A = $117,333 and B = $211,200, so he adds back the $176,000 reserve and claims a new one of $117,333. The recapture of $90,000 stays in 2026.

Selling a duplex or triplex you lived in

Many Québec landlords live in one unit of their plex, and that unit can be your principal residence. When you sell, you split the price, cost and expenses between the part you lived in and the rented part, by floor area or number of rooms, as long as the split is reasonable. The gain on your own unit is sheltered for every year you designate it; the gain on the rented units is taxable, and recapture applies to the CCA you claimed on them.

The exemption formula is: gain × (1 + years designated) ÷ years owned. The extra "+1" year lets you sell one home and buy another in the same year without losing a year. You must report the sale even when the exemption covers everything: federally on Schedule 3 and Form T2091(IND), and in Québec on Schedule G (box 109 of Part A) with Form TP-274. Revenu Québec charges a penalty of $100 per month, up to $5,000, if you omit Form TP-274, and you can designate a property for Québec only for years you also designated with the CRA.

Example 4: an owner-occupied duplex

You owned a duplex for 10 years, lived in the lower unit (50% of the floor area) the whole time and rented the upper unit, claiming $20,000 of CCA on that half. The net gain on the whole property is $300,000. The $150,000 on your unit is fully exempt. The $150,000 on the rental half is a capital gain ($75,000 taxable), and the $20,000 of CCA comes back in full as recapture if the rental half of the building sold for at least its original cost (only in part if it sold for less than that cost but more than its UCC).

Change of use: the 45(2) and 45(3) elections

Every time you change the use of all or part of a property, the law treats you as having sold it at fair market value and bought it back. Revenu Québec adds that a change in use occurs each time the percentage of use changes. Two elections can avoid the immediate tax:

Situation	Federal election	Effect	Québec
You move out of your home and rent it, or rent part of it	Subsection 45(2): letter signed by you, filed with the return for the year of the change	No deemed sale; you can keep designating it as your principal residence for up to four years (longer in some job relocations); no CCA while the election is in effect	Applies automatically under section 284 of the Taxation Act if made federally; send Revenu Québec a signed letter with your return
You move into a unit you used to rent	Subsection 45(3): letter signed by you, due by the filing date for the year you actually sell (or 90 days after the CRA asks)	Gain deferred until sale; up to four prior years can be designated; not available if CCA was claimed on the property after 1984	Applies under section 286.1; send Revenu Québec a signed letter by the filing due date for the year of the actual sale or by the 30th day after the federal election, as applicable

Since March 19, 2019, both elections are also available on a partial change in use, such as converting the upper unit of your duplex from your family’s space into a rental. Without an election, the CRA usually considers that no change in use occurred for a small rental, such as a room, only if the rental use is ancillary, there are no structural changes and you claim no CCA. Claiming CCA on part of your home is the fastest way to lose that treatment. Even with a 45(3) election, any recapture of CCA triggered by the change of use is reported in the year of the change.

Is there GST or QST on the sale of a rental property?

Usually not. The sale of a previously occupied residential complex by a person who is not its builder is exempt from GST under Schedule V of the Excise Tax Act, and the QST follows the same rule; this covers the resale of a rental duplex, triplex or condo by an investor. The exceptions are new or substantially renovated housing, where you are considered the builder: if you built the property, or renovated it to the point that the building was essentially replaced, the sale, or even the first rental (a self-supply), can be taxable. Commercial units in a mixed-use building are also taxable.

Selling as a non-resident: T2062 and TP-1097

A rental property in Québec is taxable Canadian property and taxable Québec property. If you no longer live in Canada when you sell:

Federally, you must notify the CRA within 10 days of the sale (or in advance) with Form T2062 and pay or secure the estimated tax to obtain a certificate of compliance. Without it, the buyer can become liable and is entitled to withhold 25% of the proceeds, or 50% on certain types of property such as depreciable property.
In Québec, you notify Revenu Québec within 10 days with Form TP-1097-V. The penalty for not filing is $25 per day, up to $2,500. Without a certificate (TPF-1098-V), the buyer must pay Revenu Québec 12.875% of the purchase price under section 1101 of the Taxation Act.

The notary will hold back these amounts from the sale proceeds until the certificates are issued, which can take months. You then file federal and Québec returns for the year of sale to report the actual gain and recapture and recover any excess. Our guide to non-resident landlords and section 216 covers the rental years that come before the sale.

The notary and the welcome tax

The notary prepares the deed, pays off the mortgage, holds the funds in trust and gives you a statement of adjustments; keep it with the broker’s invoice to support your proceeds and selling costs, and expect no tax holdback if you are a Canadian resident. The welcome tax is the buyer’s cost, not yours.

How do you report the sale on your tax returns?

What	Federal (T1)	Québec (TP-1)
Capital gain on land and building	Schedule 3, Part 3, line 5: proceeds on line 13599, gain on line 13800	Schedule G, in the section for immovable property; taxable amount carried to line 139
Recapture or terminal loss	Form T776, Part 4 (recapture on line 9947)	Form TP-128-V, rental income and expenses
Reserve for unpaid proceeds	Form T2017	Calculated as in guide IN-120 and claimed on Schedule G
Principal residence part (plex you lived in)	Schedule 3, Part 2, and Form T2091(IND)	Schedule G (box 109) and Form TP-274
Change-of-use elections	Signed letter under 45(2) or 45(3)	Signed letter referring to sections 284 or 286.1

An unreported real estate sale can be reassessed beyond the normal period, so keep the purchase deed, improvement invoices, CCA schedules and sale documents for at least six years after the year of sale (see how long to keep tax records). The rental years themselves are covered in our rental income tax guide.

How can you reduce the tax on the sale of a rental property?

Time the closing. A January closing moves the gain and recapture into the next tax year.
Take back a balance of sale to use the five-year reserve, if the buyer’s credit is sound.
Use capital losses carried forward from earlier years against the taxable gain.
Document your cost base: every capital improvement you can prove reduces the gain.
Review principal residence years if you lived in the property at any time, and check whether a 45(2) or 45(3) election was made.
Plan an RRSP deduction for the year of sale.

Common mistakes when selling a rental property

Reporting the whole profit as a capital gain and forgetting recapture of CCA.
Reporting a capital loss on the building. A loss on depreciable property can only be a terminal loss, and 13(21.1) may cancel it.
No land and building split, or a split that has nothing to do with the assessment.
Forgetting the Québec return. Schedule G and TP-274 are separate from the federal forms, and the TP-274 penalty runs monthly.
Claiming CCA on the part of a plex you live in, or on a property under a 45(2) election.
Selling within 365 days without checking the flipped property rules.
Ignoring instalments the year after a large sale.
Non-residents closing without TP-1097 and T2062, which can leave a large share of the price frozen with the notary (25%, or 50% on depreciable property, federally, plus 12.875% for Québec).

How we can help

We prepare the year-of-sale federal and Québec returns for landlords: land and building allocation, recapture and terminal loss calculations, reserves, principal residence designations, change-of-use letters and the non-resident certificates. A tax professional reviews every return. Personal returns start at $300 (personal tax returns), and our landlord accounting service keeps your CCA schedules ready for the day you sell. See pricing, or contact us with your purchase deed and the accepted offer before the notary signing, when there is still time to plan.

Frequently asked questions

How much tax do I pay when I sell a rental property in Québec?

There is no flat rate. Half of the capital gain is added to your income, and any recapture of CCA is added in full; both are then taxed at your marginal federal and Québec rates for the year of sale. Recapture often pushes the seller into the top bracket, so the effective cost depends on how much CCA you claimed and on your other income.

Is the capital gains inclusion rate two-thirds in 2026?

No. The proposed increase to two-thirds on gains above $250,000 was never enacted and was cancelled on March 21, 2025. For individuals, one-half of a capital gain is taxable in 2026, federally and in Québec.

Do I have to pay back the depreciation I claimed?

If the building sells for more than its undepreciated capital cost, yes: the difference, up to the CCA you claimed, is recapture and is added to your rental income at 100% in the year of sale. If it sells for less, you may have a terminal loss instead, which can be reduced when the land is sold at a gain.

Can I avoid capital gains tax on a duplex I live in?

Only on the part you lived in. The unit you occupied can be designated as your principal residence, so its share of the gain is exempt for the designated years. The rented part is taxable, and CCA claimed on it can be recaptured. You must report the sale on Schedule 3 and Form T2091(IND) federally, and on Schedule G with Form TP-274 in Québec.

Can I spread the capital gain over several years?

Yes, if part of the price is payable after the end of the year, for example with a balance of sale. You can claim a reserve so that at least one-fifth of the gain is reported each year, over a maximum of five years. Recapture of CCA cannot be spread this way.

Is there GST and QST on the sale of a rental property?

Generally not for a used residential building sold by someone who is not its builder; that sale is exempt. GST and QST can apply if the property is new or substantially renovated and you are considered the builder, and to commercial units in a mixed-use building.

What happens if I sell my Québec rental property while living abroad?

You must notify the CRA with Form T2062 and Revenu Québec with Form TP-1097 within 10 days of the sale and pay or secure the estimated tax to get clearance certificates. Until then, the notary usually holds back funds, because the buyer can be liable for 25% (50% on certain property) federally and 12.875% of the price in Québec.

Do I report the sale on my Québec return too?

Yes. Québec residents report the capital gain on Schedule G of the TP-1 return (carried to line 139), the recapture or terminal loss on the rental income form, and, if part of the property was your home, Form TP-274. Revenu Québec charges $100 a month, up to $5,000, when Form TP-274 is missing.

Selling a Rental Property in Québec: Tax on the Sale (2026 Guide)