How is the tax on selling a rental calculated?

In Canada, 50% of the capital gain is taxable and added to your income for the year of sale (the inclusion rate is 50% as of 2026). In the United States, the gain is taxed at capital gains rates and any depreciation you claimed is recaptured. Confirm current rules with a tax professional before selling.

What is the opportunity cost of keeping a rental?

It is the return you give up by leaving your equity locked in the property instead of selling and investing it. If your equity is large and your net rental return is low, the opportunity cost can be the strongest argument for selling.

Should I Keep or Sell My Rental Property? A 2026 Decision Guide

Q: Is negative cashflow always a reason to sell?

Not necessarily. A property can lose money each month but still build wealth through principal paydown and appreciation. The question is whether the total return beats what you would earn by selling and investing the freed-up equity elsewhere.

Every landlord eventually asks it: is this rental still worth holding, or is it time to cash out? The honest answer is that "it depends" is a cop-out. The decision comes down to a handful of numbers, and once you line them up, the right move is usually clearer than it feels.

The short version. Keep the property if its total return (cashflow plus principal paydown plus appreciation, after tax) beats what you could earn by selling and investing the equity somewhere else. Sell if the money is working harder outside the property than inside it.

The five numbers that actually decide it

Ignore the emotions and the "I'll never time it perfectly" spiral. Focus on these:

Monthly cashflow. Rent minus every real cost: mortgage, taxes, insurance, maintenance, vacancy, and management. Be honest about the ones people skip, especially vacancy and repairs.
Principal paydown. Each mortgage payment quietly buys you more of the property. This is a real return even when cashflow is thin.
Appreciation. A realistic long-run estimate for your area, not the last two hot years projected forever.
Opportunity cost of your equity. If you sold, you would free up your down payment plus all the equity built since. What would that lump sum earn invested elsewhere? That is the bar the property has to beat.
The tax bill on a sale. Selling is not free. The capital gains tax (and, in the USA, depreciation recapture) can take a meaningful bite, which changes how much you would actually have to reinvest.

The case for keeping

Holding tends to win when the mortgage is well below current rates, the property is roughly cashflow-neutral or positive, and you believe in the location long term. A cheap fixed mortgage is itself an asset. Selling to escape a small monthly loss can be a mistake if principal paydown and appreciation more than make up for it, and if the sale would trigger a large tax bill that shrinks your reinvestable equity.

The case for selling

Selling tends to win when a large amount of equity is trapped in a property earning a low net return. If you are sitting on hundreds of thousands in equity that produces only a slim yield, that same money invested elsewhere could do far more, and you would shed the work, risk, and stress of being a landlord. Selling also makes sense when major capital costs are looming (roof, windows, a problem tenant, a special assessment) that would wipe out years of profit.

The break-even way to think about it

Instead of "good or bad," ask: what rent would this property need to truly break even once you count vacancy, maintenance, and management? If market rent is comfortably above that break-even figure, the property earns its keep. If you are below it and cannot raise rent to close the gap, that is a strong signal.

Do not forget the tax on the sale

This is the step most quick mental math skips, and it can flip the decision.

In Canada

When you sell a rental, 50% of the capital gain is taxable and added to your income for that year (the inclusion rate remains 50% as of 2026, after a proposed increase was deferred and then scrapped). A large gain can push you into a higher bracket for the year, so the effective hit is often bigger than people expect. Any capital cost allowance you claimed may also be recaptured.

In the United States

The gain is taxed at long-term capital gains rates if you held it over a year, and the depreciation you deducted (or were entitled to deduct) is recaptured and taxed, often at a higher rate. Some sellers defer the whole bill with a 1031 exchange into another investment property.

Confirm before you act. Tax rules change and depend on your full situation. Treat the figures above as a starting point and confirm the current rules with a qualified tax professional before selling.

Run your own numbers

The keep-or-sell calculator does this comparison for you. It projects after-tax cashflow, principal paydown, and appreciation for keeping, weighs it against selling and reinvesting the equity, and it has full federal and state or provincial tax handling for both the USA and Canada. Nothing you type leaves your browser.

See whether keeping or selling builds more wealth for your exact situation.

Open the Keep-or-Sell Calculator →

Frequently asked questions

Is negative cashflow always a reason to sell?

No. A property can lose a little each month yet still build wealth through principal paydown and appreciation. What matters is the total after-tax return versus what your equity would earn elsewhere.

How much tax will I pay when I sell?

In Canada, 50% of the gain is taxable at your marginal rate for the year. In the USA, you pay capital gains tax plus depreciation recapture. Both depend on your income and how long you owned the property, so confirm with a tax professional.

What if I just do not want to be a landlord anymore?

That is a legitimate input, not a weakness. If the numbers are close, the value of your time and peace of mind can and should tip the decision toward selling.