Real estate sale transactions in Israel trigger several taxes for both buyers and sellers. Understanding these taxes, applicable exemptions, and planning opportunities is essential for optimizing the financial outcome of any real estate transaction.
Seller’s Tax Obligations: Appreciation Tax (Mas Shevach)
Sellers pay appreciation tax on the gain realized from selling the property. The tax is calculated on the difference between the sale price and the adjusted cost base (original purchase price plus allowable additions, adjusted for inflation).
The rate varies depending on when the property was purchased – properties purchased before 2014 are taxed differently from those purchased after.
Primary Residence Exemption
A primary residence exemption from appreciation tax is available in certain circumstances. The exemption has specific conditions: the property must have been the seller’s primary residence, there are restrictions on how frequently the exemption can be used, and there may be size limitations.
A tax advisor will determine whether the exemption is available and how to properly claim it.
Buyer’s Tax Obligations: Purchase Tax (Mas Rechisha)
Buyers pay purchase tax based on the purchase price. The rate varies depending on whether this is the buyer’s sole apartment, the price range, and other factors.
Betterment Levy
If the property benefited from a planning decision that increased its value before the sale, the seller may owe betterment levy to the local planning authority.
Tax Planning in Transactions
Coordinating the timing and structure of real estate sales to minimize total tax is an important part of any significant transaction. This may involve timing relative to tax year, coordinating with other gains and losses, and structuring payment arrangements.
An attorney working with a tax advisor can develop a comprehensive tax strategy for real estate transactions.
