When I am helping people figure out how much of a gain or a loss on the sale of a property, (like a cottage) we are often confused by cash flow. Some people think that if they sold the property for $200,000 and the mortgage is $120,000 so they have a gain of $80,000. This is cash flow. Cash flow is the money you have in your pocket after a transaction.
Cash flow is not the amount of the gain, and it is the gain that is taxable. The gain is the difference between the amount that you paid for a property and what you sold it for. So in this case, if the taxpayer bought the property for $90,000, then they have a gain of $110,000 being the difference between the $200,000 they sold it for and the $90,000 they paid for it.
Every property you own, be it a cottage, a rental property or land, has a cost. This cost is the amount you paid for it, plus any additions or improvements you made. Examples of improvements are; adding a deck, putting in a septic system, a new roof or landscaping. All of these costs are added to the cost of the property, unless you claimed them as repair expenses on your tax return, in which case they are not added to the cost of the property.
You may be wondering how the mortgage in my example got to be $120,000 when they only paid $90,000 for the property, likely a while ago. This would be due to refinancing. The owners refinanced the property and used the money for something else.
Take a look at the cost of your properties and the likely selling price to figure out the gain on your properties.