Capital gains tax on real estate (mas shevach) is one of the most significant tax considerations in Israeli property transactions. Understanding how it is calculated, when exemptions apply, and how to plan for it is essential for any property owner.
What is Mas Shevach?
Mas shevach (literally ‘appreciation tax’) is the Israeli equivalent of capital gains tax applied to real estate. It is levied on the profit realized when a property is sold – the difference between the sale price and the adjusted acquisition cost.
The Calculation
The taxable gain is calculated by subtracting the adjusted cost base from the sale price. The adjusted cost base includes the original purchase price, costs of acquisition (legal fees, agent commissions, etc.), capital improvements made to the property, and adjustment for inflation according to official indices.
Tax Rates
The applicable tax rate depends primarily on when the property was purchased. Properties purchased before specific dates may benefit from transitional rates or different calculation methods. The rate can vary from 20% to 25% for most cases.
Primary Residence Exemption
The most significant exemption is for primary residences. A seller who has used the property as their primary residence and meets other conditions may be exempt from mas shevach entirely.
The conditions include: the property was the seller’s primary residence for the majority of the ownership period, the seller has not claimed this exemption within a certain preceding period, and the sale price is within certain limits.
Payment Timing and Filing
Mas shevach must be declared and paid within specific deadlines after the transaction closes. Late filing and payment attract interest and penalties. An attorney working with a tax advisor ensures all obligations are met on time.
