Things You Need to Know About Real Estate Taxation
Real estate taxation is a complex field that applies to all types of real estate transactions. The Real Estate Taxation Law, enacted in 1963, regulates tax levies on the sale of real estate rights. A thorough understanding of this law is essential for anyone selling or purchasing property, and proper tax planning can save hundreds of thousands of shekels.
This is one of the most complex areas in real estate law, and it requires professional guidance from a knowledgeable attorney.
Main Types of Real Estate Transaction Taxes
When discussing real estate taxation, we typically refer to three main types of taxes:
1. Capital Gains Tax
This is the tax imposed on the seller. It is calculated on the “gain” (profit) generated from the transaction. In other words, the difference between the selling price and the purchase price. The law allows deducting many expenses incurred by the seller, such as:
- Attorney fees (for both purchase and sale).
- Brokerage fees.
- Property renovation and improvement expenses.
- Authority fees paid.
- Mortgage interest (under certain conditions).
Before selling, it’s recommended to use the Tax Authority’s simulator to perform a capital gains tax self-assessment.
2. Purchase Tax
This is the tax imposed on the buyer. The tax rate isn’t fixed but graduated and varies according to several factors, mainly: whether it’s the buyer’s only property, whether it’s an investment property (second property or more), or whether the buyer is a new immigrant.
After purchase and tax calculation, purchase tax payment can be made online.
3. Betterment Levy
This is a payment to the local planning and building committee (not to the Tax Authority). It applies only if a city building plan (TABA) was approved that increased the property’s value (for example, added building rights). The levy is paid when rights are exercised, usually at the time of property sale.
Capital Gains Tax Calculation (2001 Reform)
Capital gains tax rates have changed over the years. Previously, the individual tax rate was up to 50%. Under a law reform, the tax was significantly reduced for gains accrued from November 7, 2001 onwards (to 20% and then 25%).
When selling a property purchased before 2001, tax officials perform a “linear” calculation:
- They examine the entire holding period of the property (from purchase date to sale date).
- Calculate the relative gain accrued until November 2001 (subject to the old, higher tax).
- Calculate the relative gain accrued from November 2001 onwards (subject to the new, lower tax).
The longer the property was held before 2001, the higher the final tax might be. This is another reason why professional tax planning is essential.
Proper Tax Planning Saves a Lot of Money
Real estate taxation is a dynamic field, and the law provides many reliefs and exemptions (for example, when selling a single residential apartment, transferring to a close family member under certain conditions, etc.). Attempting to conduct a transaction without tax consultation could lead to an expensive tax accident.
Contact our office for consultation and tax planning in real estate transactions
Frequently Asked Questions About Real Estate Taxation
Q: Is there a full exemption from capital gains tax on residential property?
A: Yes, but under strict conditions. The most common exemption is for a “single residential apartment.” To receive it, the seller must have owned the apartment for at least 18 months, and it must indeed be their only apartment in Israel. There are additional conditions and an exemption ceiling, so each case must be examined individually.
Q: I bought an “off-plan” apartment from a contractor. When does the tax calculation begin?
A: The purchase date for tax purposes is the day of signing the contract with the contractor, *not* the day of receiving the keys or the registration date in the Land Registry. This is crucial data for calculating the property holding period.
Q: Can I get an exemption from purchase tax?
A: Full exemption is almost non-existent, but there are significant reliefs. First-time buyers enjoy very low tax brackets (and sometimes exemption up to a certain amount). Disabled persons, new immigrants, and bereaved families are also entitled to significant purchase tax reliefs.
The content of this site is intended for informational purposes only, it does not constitute legal advice and is not a substitute for legal advice provided by an attorney.
