Any profit you realize on the sale of rental property constitutes a capital gain that you must report in your income tax return. For further information on capital gains and losses, see the guide Capital Gains and Losses (IN-120-V).

If you dispose of a rental property for more than the purchase price, you must add to your rental income for the year of disposition not only a capital gain, but also an amount representing the recapture of capital cost allowance.

If you dispose of a rental property and the proceeds of disposition are lower than the purchase price but higher than the undepreciated capital cost, only the amount representing the recapture of CCA must be included in your income, since there is no capital gain. The recapture of CCA is equal to the difference between the proceeds of disposition and the undepreciated capital cost.

If the selling price of your rental property is lower than the undepreciated capital cost of the property, the difference between the two amounts is a terminal loss.

For further information, see the guide Individuals and Rental Income (IN-100-V).