Israeli capital gains tax on real estate (Mas Shevach) can be a central issue when selling property in Israel. The result can vary significantly according to the type of property, when and how it was acquired, the seller’s circumstances, documented expenses and the availability of any exemption or relief.
The tax position should be examined before the sale agreement is signed, so that the seller understands the expected net result and the transaction can be structured and documented accordingly.
Can a Foreign Resident Receive a Residential Exemption?
In certain circumstances, a foreign resident may qualify for a residential-property exemption, but the conditions need to be examined carefully. These may include requirements concerning residential property ownership in the seller’s country of residence. A foreign seller should therefore not assume that an exemption is either automatically available or automatically unavailable.
If the Sale Is Taxable
The calculation may take into account the acquisition and sale values and allowable expenses connected with the property and the transaction. Depending on the circumstances, relevant expenses can include certain acquisition and sale costs, legal and brokerage fees, qualifying improvement costs, purchase tax and qualifying financing expenses.
Documentation matters. Expenses that cannot be properly supported may be more difficult to deduct.
What About Depreciation?
Depreciation can affect the capital-gains calculation where the property has been rented. The treatment may depend on the rental-tax regime that applied, the circumstances of the property and the applicable legal position. This is an area in which case law and the Israel Tax Authority’s position should be examined carefully when calculating the expected tax.
Additional Building Rights
Where the value of a residential property is influenced by unused building rights, the exemption analysis may not necessarily apply to the entire sale value in the same way. A professional valuation may be important in determining the value attributable to the residence and to additional rights.
Capital Gains Tax and Betterment Levy Are Not the Same
Mas Shevach is a state tax on the real-estate gain. A municipal betterment levy (Hetel Hashbacha) is a different charge that may arise from planning-related increases in value. A seller may need to consider both when assessing the net proceeds.
The Purchaser’s Capital Gains Tax Advance
Israeli law includes a mechanism under which, in relevant cases, part of the consideration may be paid by the purchaser to the Israel Tax Authority on account of the seller’s capital-gains tax. The amount is credited to the seller’s tax account, and in appropriate circumstances an application may be made concerning the amount of the advance. This should be considered when preparing the payment schedule and completion mechanism.
Reporting the Sale
The sale is subject to statutory reporting requirements and deadlines. As a general rule, the transaction is reported within 30 days. The tax declaration, supporting documents and payment arrangements should be coordinated with the contractual timetable and the documents required to complete registration.
Is an exemption available? What is the taxable gain? Which expenses can be documented? Is depreciation relevant? Are there additional building rights or a betterment levy?
Related Guidance
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Editorial review: Time-sensitive tax information is checked against current Israeli legal and tax sources before publication. This page is reviewed when substantive changes are made.
This guide provides a general framework only. The legal and tax position can change significantly depending on the property, the parties and the circumstances of the transaction.