Commercial real estate
Thinking about selling your property? Run all the numbers first
Many owners decide to sell because they need cash: to retire, buy something else, help their children or simply step back. The sale price gets all the attention, but it is not what you keep. Once commissions, mortgage penalties and tax are taken out, the cheque can be far smaller than expected. Before you list, it is worth comparing a sale with the option of keeping the property and accessing equity instead.
The price is not what you walk away with
When you sell an income property, several costs come off the top before the money is yours:
- Commissions and closing costs. Real estate commissions, legal fees and any adjustments.
- Your mortgage payout. The full balance is repaid on closing.
- A prepayment penalty. Selling before your mortgage matures can trigger a penalty. On commercial mortgages this is often calculated as an interest-rate differential or yield maintenance, and it can be significant.
- Capital gains tax. Half of the gain is currently included in taxable income. A proposed increase to that inclusion rate was cancelled in 2025.
- Recapture. If you claimed depreciation (capital cost allowance) on the building over the years, that amount can be added back to your income in the year of sale and taxed in full.
Depending on the property, GST may also apply to the sale of commercial real estate, and BC's home flipping tax can apply to residential property sold within 730 days of purchase. Your accountant and lawyer should confirm how each applies to you.
An example: a $3.0 million commercial building
Consider a hypothetical owner who bought a small commercial building in 2011 for $1.2 million. It is now worth about $3.0 million, earns roughly $180,000 a year in net rent and has a $900,000 mortgage with two years left on a fixed term. Over the years, the owner claimed $250,000 of depreciation on the building.
| Option 1: Sell the building | Amount |
|---|---|
| Sale price | $3,000,000 |
| Commission at an assumed 3% and closing costs | −$95,000 |
| Mortgage payout | −$900,000 |
| Prepayment penalty (assumed) | −$40,000 |
| Cash at closing, before tax | $1,965,000 |
| Estimated tax on the capital gain and recapture (assumed 50% rate) | −$551,000 |
| Estimated cash kept | ≈ $1,414,000 |
The property sold for $3.0 million, but the owner keeps roughly $1.4 million, and the $180,000 a year of rental income stops.
Option 2: Keep the property and take out equity
If the goal is cash rather than getting out of real estate, a refinance may be worth comparing. In the same example, a new mortgage at 60% of value would be $1.8 million.
| Option 2: Equity take-out refinance | Amount |
|---|---|
| New mortgage at 60% of $3.0 million value | $1,800,000 |
| Pay out existing mortgage | −$900,000 |
| Prepayment penalty (assumed, if refinancing before maturity) | −$40,000 |
| Lender, legal and appraisal fees (assumed 1%) | −$18,000 |
| Estimated cash released | ≈ $842,000 |
The refinance releases less cash than the sale, but borrowed money is not income, so there is no tax on the proceeds. The owner keeps the building, keeps positive cash flow after the new payments and keeps any future growth in value. The tax on the gain is not avoided. It is deferred until the property is eventually sold or transferred, which should be part of the long-term plan.
A refinance also adds risk: more debt, a higher payment and renewal at whatever rates apply in the future. Lenders will test whether the rent covers the new payments with room to spare, so the amount available depends on the property's income, not just its value.
Neither option is right for everyone
Selling can be the right decision when you want to be finished with property management, the building needs major capital work, the area or tenant outlook is weakening or you need more cash than a refinance can provide. Keeping and refinancing can make more sense when the property is performing well, you want to leave the asset to the next generation or you need capital for a specific purpose rather than an exit.
There are also options in between: waiting for your mortgage to mature to avoid a penalty, selling a portion of a portfolio, bringing in a partner or timing a sale across tax years. On one recent file, an equity take-out on a strip mall allowed a family to release capital for the next generation without selling a strong income-producing asset.
Questions to answer before you list
- What do you actually need the money for, and how much?
- When does your current mortgage mature, and what is the penalty today?
- What is your estimated after-tax amount, including recapture? Ask your accountant for a written estimate.
- How much could you borrow against the property, and could the rent support it?
- What would you do with the sale proceeds, and would that investment earn more than the property does now?
- Who should own the property in 10 or 20 years?
Put the two options side by side
A sale is usually final. Before you sign a listing agreement, ask your accountant for an after-tax sale estimate and ask a lender or mortgage broker what a refinance could release. With both numbers in front of you, the decision is far clearer.
Sell or refinance?
Know what you would keep before you list.
Share the property type, estimated value, current mortgage details and rental income. Gary will outline what an equity take-out could realistically release so you can compare it with your sale estimate.
Sources and scope
This article provides general information as of October 23, 2026 and is not tax, legal or financial advice. Both examples are hypothetical and are not an offer of financing. They assume a $3.0 million value, a $1.2 million purchase price, $250,000 of capital cost allowance claimed, a $900,000 mortgage, a 3% commission plus $5,000 of closing costs, a $40,000 prepayment penalty, a 50% tax rate on the taxable gain and recapture, and a $1.8 million refinance at 6.0% with a 25-year amortization and monthly payments. Actual penalties, taxes, rates, loan amounts and approvals vary by property, borrower and lender. References to the 50% capital gains inclusion rate, the 2025 cancellation of the proposed increase and the BC home flipping tax reflect publicly available government and professional sources; confirm your situation with your accountant and lawyer before acting.