Anyone selling an apartment in Israel must report the sale to the Tax Authority, and sometimes pay capital gains tax (mas shevach). Many sales qualify for an exemption, but it is not automatic and must be claimed.
What is the tax calculated on?
On the gain: the difference between the sale price and the adjusted purchase price, after deducting permitted expenses. These usually include legal and brokerage fees, purchase tax paid, significant improvements and renovations with invoices, and betterment levy paid.
Exemption for a qualifying residential apartment
The law allows an exemption on the sale of a qualifying residential apartment, subject to conditions. The main tracks are the single-apartment exemption, subject to waiting periods and a value cap, and special exemptions, for example for an inherited apartment. The conditions are detailed and change from time to time, so check them before signing, not after.
Reporting and deadlines
The sale must be reported to the Tax Authority shortly after signing, usually by the lawyer, even when claiming an exemption. The tax is paid within the period set by law. Without Tax Authority approval the rights cannot be transferred to the buyer.
How it fits into the contract
The contract usually provides that part of the price is held in trust by the buyer’s lawyer until the seller presents Tax Authority approval. This protects the buyer, and the seller knows what to expect. See also what the seller needs to prepare.
Capital gains tax and betterment levy
These are two different payments. Capital gains tax is paid to the Tax Authority on the profit from the sale. The betterment levy is paid to the local planning committee on an increase in value following a plan or relief approval.
Where do you go from here?
Every deal and every property is different, and a small detail in a contract or registration can be worth a lot of money. At Paz Israel & Co. Law Office we support buyers, sellers, landlords and property owners, from the first check to registration at the Land Registry. For more information see our real estate lawyer page, or contact us to schedule a meeting in Tel Aviv, Jerusalem or Modi’in.
This article provides general information, is correct as of the time of writing, and does not constitute legal or tax advice or a substitute for reviewing your specific circumstances.