What is the structure of real estate taxes in Israel ?
Real estate taxation in Israel is vital for property owners, investors, and potential buyers and sellers to understand due to its complexity and regular amendments.
By January 16th 2023 a new Purchase tax came into effect in Israel. Purchase tax rate increased, and foreigners along with Israeli multiple-home owners are obligated to pay the capital gains tax on residential property investments.
This article will discuss the changes in the purchase and land appreciation taxes, who it affects, and how to benefit from logistic planning.
Purchase Tax in Israel
Purchase tax is a progressive tax that increases based on the property's value, with rates ranging from 0 % to 10%. The purchaser of the property is obligated to pay the purchase tax.
This tax is differentiated into the following categories:
1. Israeli citizen single home owner
2. Non-Israeli making Aliya (within two years)
3. Single home owner
4. Israeli citizen multiple-home owner
5. 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 Purchase Tax Bracket – 2023 – 2024
Property Value (NIS)
Ends January 15, 2024
Israeli resident single home owner;
0 to 1,919,155
1,919,155 to 2,276,360
2,276,360 to 5,872,725
5,872,725 to 19,575,755
Israeli citizen multiple home owner; non-Israeli resident owner
0 to 5,872,725
non-Israeli making Aliya
0 to 1,928,220
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 in Israel – 2023-2024
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 and is still valid today, as for 2023 – 2024 :
- The exemption of Land appreciation tax is only valid on the first 4,846,000 NIS of the property sale price
- 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
- 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)
- 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
- 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 a significant linear tax reduction 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.
How are real estate taxes for foreigners (Non-Israeli) different?
Foreigners should be wary of potential double taxation. Although Israel has treaties to prevent this with many nations, understanding the implications both in Israel and one's home country is crucial.
Foreigners buying or selling property in Israel are subject to Israeli real estate taxes. While similar to resident tax structures, there are nuances:
- Purchase tax: Rates are similar to Israeli citizen multiple home owner (8% – 10%). Non-residents might miss out on tax breaks available to residents.
- Land appreciation tax: Calculated on the selling price minus the purchase price, adjusted for inflation.
- Arnona: This municipal tax applies to everyone, irrespective of residency.
?How can I minimize my real estate tax liability in Israel
- Efficient planning and understanding the nuances of the tax code can help. This includes:
- Utilizing tax breaks and exemptions
- Accurately reporting deductible expenses
- Considering the timing of buying/selling properties
- Consulting with a tax expert for tailored strategies
We specialize in real estate taxation, tax planning, legal representation in real estate transactions, sales of second-hand apartments, purchases of second-hand or contractor apartments, and the tax-free transfer of apartments within families, all while offering creative tax solutions.
Additionally, the office deals with inheritance laws, such as the drafting of wills, mutual wills, financial agreements, estate division agreements, and ongoing power of attorney.
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