Real Estate Tax Reform Legislation, Israel, 2017-2018

As of January 01, 2014, the new land appreciation tax was enacted, and by January 17, 2017, a new acquisition tax came into effect . Consequently, purchase tax rate increased, and foreigners along with Israeli multiple-home owners will be obligated to pay the capital gains tax on residential property investments.  This article will discuss the changes in the acquisition and land appreciation taxes, who it affects, and how to benefit from logistic planning.

Acquisition Tax Reform

The purchaser is obligated to pay the acquisition tax. This tax is differentiated into the following categories: Israeli citizen single home owner, non-Israeli making Aliya (within two years) single home owner, Israeli citizen multiple-home owner, and non-Israeli resident property owner.  Single home owner refers to those who own less than 33% of an initial property in or outside of Israel; more than 33% ownership of any property, in or outside of Israel, will fall under the multiple home owner category.

Estimated Acquisition Tax Bracket    

Purchaser

Property Value (NIS)

As of January 16, 2017

Israeli resident single   home owner;

0 to 1,623,320

1,623,320 to 1,925,460

1,925,460 to 4,967,445

4,967,445 to 16,558,150

Above 16,558,150

0%

  3.5%

  5%

  8%

  10%

 Israeli citizen   multiple home owner; non-Israeli resident owner

 0 to 4,967,445

Above 4,967,445

 

 

  8%

10%

non-Israeli making   Aliya

0 to 1,759,310

         Above 1,759,310

  0.5%

  5%

Figures are subject to change according to accommodations stipulated in the law; consult a real estate advocate to ensure accurate tax rate.

Land Appreciation Tax Reform

The seller is obligated to pay the land appreciation tax, which refers to the capital gain of residential property ownership. Prior to January 01, 2014, Section 49b(1) stipulated that anyone could be exempted from the capital gain tax on the selling of residential property as declared by law every four years regardless of how many properties owned or the length of time owned; furthermore, Section 49b(2) permitted all single residential property owners exemption from capital gain tax every eighteen months provided that the owner did not own or inherit more than one apartment four years prior to the sale.

The Arrangements Law initiated tax reforms under the Amendment 76 Real Estate Taxation Law that eliminated Section 49b(1) and changed 49b(2), which significantly affected luxury residential property owners,  activated January 01, 2014:

Section 49b(2)

  1. The exemption of Land appreciation tax is only valid on the first 4.5 m. NIS of the property sale price
  2. Considering there is no legislature on how to provide proof of property outside of Israel, non-Israeli citizens do not qualify for the capital gain tax exemption
  3. Single Israeli citizens or non-Israeli citizens making Alya (within two years)residential owners may claim the capital gain tax exemption every eighteen months regardless of previous ownership, but the owner is obligated to own the single apartment for at least eighteen months of occupancy approval (Form #4)
  4. The single Israeli residential owner may utilize the capital gain tax exemption  with the ownership of  1/3 and less addition to the property being sold
  5. The inheritance of  property will not affect the single Israeli residential owner’s claim for the capital gain tax exemption on the property owned; however, refer to Section 49b(5) regarding the law of inheritance property

48b(1) Transitional Grace Period  

From January 01, 2014 to December 31, 2017, a significant linear tax reduction on up to two residential properties is attainable by Israeli citizens. Non-Israeli citizens do qualify for the linear tax reduction as well.

  • Within the transitional period the land appreciation taxes will be calculated by dividing the capital gain value of the property at the point of sale by the number of years the property was owned, there by subtracting the capital gain prior to January 01, 2014, and taxing only the capital gain commencing from January 01, 2014 to the date of sale; any capital gain prior January 01, 2014 will be exempt. Therefore, it would benefit the owner to sell as early as possible.

 

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