In short
Who pays capital gains tax on Israeli real estate, and how much?
The seller pays capital gains tax (mas shevach) on the real gain from selling an apartment or other real estate, under the Real Estate Taxation Law (Appreciation and Acquisition), 5723-1963. An individual generally pays 25% of the real gain unless there is an exemption, such as the single residential apartment exemption. The sale is reported to the Israel Tax Authority within 30 days and the tax is paid within 60 days.
What Is Taxed and Who Pays
The Real Estate Taxation Law (Appreciation and Acquisition), 5723-1963, imposes capital gains tax (mas shevach) on the sale of a right in real estate: an apartment, a house, a plot, a store or an office. The seller is liable for the tax. The buyer pays purchase tax (mas rechisha), which is a separate tax.
The tax is charged on the gain, meaning the difference between the sale value and the purchase value plus the expenses the law allows as deductions. A transfer without consideration, such as a gift, also counts as a sale under the law, but some of these transfers are exempt, for example a gift to a relative and a transfer between spouses.
How the Tax Is Calculated
Every cost is linked to the consumer price index from the day it was incurred until the day of sale. The part of the gain that comes from the rise in the index is exempt, except the part that accrued up to 31.12.1993, which is taxed at 10%. The rest is the real gain, and the tax is paid on it.
An individual generally pays 25% on the real gain that accrued from 1.1.2012. When the property was bought earlier, the gain is divided linearly by days between the periods, and each period has its own rate. For a qualifying residential apartment that is not exempt, such as a second apartment, a beneficial linear calculation applies: the part of the gain that accrued up to 31.12.2013 is exempt, and the rest is taxed at 25%, subject to the conditions in the law. A company pays at the corporate tax rate.
The law allows certain expenses to be deducted from the gain: purchase tax paid, legal fees, brokerage fees, appraisal, betterment levy and investments that improved the property. Each expense is linked to the index from the day it was incurred, so keep invoices and receipts throughout the years of ownership. For an estimate, there is a capital gains tax calculator (in Hebrew).
Exemptions: Check First, Then Sign
The most common exemption is for a single residential apartment: you have owned it for at least 18 months, and you have not sold another apartment under this exemption in the 18 months before the sale. For an apartment worth more than the cap in the law, the exemption applies only up to the cap. There is also an exemption for an inherited apartment, subject to the conditions in the law, and an exemption for a gift to a relative.
The single-apartment condition has exceptions, for example a share of up to one third in another apartment, a share in an inherited apartment, and a replacement apartment bought close to the sale. Someone who holds two apartments checks the order of the sales before signing, because the order can determine whether an exemption applies.
The exemption affects the price that is worth accepting, so check it before signing, not after. You can start with the capital gains tax exemption check (in Hebrew). A seller entitled to an exemption must still report the sale and claim the exemption in the declaration.
Reporting, Payment, Assessment and Objection
The seller and the buyer each file a declaration with the Israel Tax Authority within 30 days of the sale. Filing is online, and usually the lawyer handling the transaction files it. In the declaration the seller calculates the tax, and this is the self-assessment.
The tax is paid within 60 days of the sale. Payment can be deferred only as long as the apartment has not been handed over to the buyer, the buyer has not paid more than 40% of the price, and no irrevocable power of attorney has been given for registration in the buyer's name. Late reporting or payment adds linkage differences and interest, and may add a fine. Without approval that the tax was paid or an exemption granted, the apartment is not registered in the buyer's name at the Land Registry (tabu).
The Tax Authority may accept the self-assessment or set the tax itself in an assessment by judgment (shuma lefi meitav hashfita), after inviting the seller to a discussion and in a reasoned decision. An objection (hasaga) to the assessment is filed in writing within 30 days of the day the notice was delivered. The decision on the objection is generally given within eight months, and if it is not given in time, the objection is deemed accepted. An appeal (arar) against the decision on the objection is filed with the Appeals Committee within 30 days.
What the service includes
- Checking capital gains tax liability and exemptions before signing the sale agreement
- Calculating the gain, the indexation and the allowable deductions
- Filing the declaration and the self-assessment with the Tax Authority
- Claiming an exemption for a single apartment, an inherited apartment or a gift
- Objecting to a capital gains tax assessment and appealing to the Appeals Committee
- Coordinating the payment and the approvals needed for registration at the Land Registry
When to contact us
- You are selling an apartment, a plot or a commercial property
- It is unclear whether the sale is exempt from capital gains tax
- You received a capital gains tax assessment higher than expected
- You sold a second apartment or an apartment you inherited
What to bring to the meeting
- The purchase agreement and the sale agreement
- A Land Registry extract (nesach tabu) or a confirmation of rights
- Invoices and receipts for renovations, legal fees, brokerage and purchase tax
- The assessment notice, if one was received
Capital Gains Tax (Mas Shevach) throughout Israel
The firm represents clients from all over Israel: Jerusalem and the Shfela, Be'er Sheva, Ashdod and Ashkelon, Haifa and the North, the Sharon and Gush Dan. Meetings take place at our two Modiin branches, at the WE Towers branch in Tel Aviv or by video call, and documents can be sent in advance on WhatsApp. We represent clients in the courts, the Labor Courts and before planning committees throughout Israel. How we work with clients across Israel.
Frequently asked questions
Who pays capital gains tax, the seller or the buyer?
The seller. Under the Real Estate Taxation Law, capital gains tax is imposed on the seller, and the buyer pays purchase tax, which is a separate tax.
How much capital gains tax is paid on an apartment?
When there is an exemption, none. When there is not, an individual generally pays 25% of the real gain, meaning the profit after indexation and deduction of expenses. For a qualifying residential apartment bought before 2014, a beneficial linear calculation sometimes applies and reduces the tax.
How soon must capital gains tax be reported and paid?
Report within 30 days of the sale and pay within 60 days. Payment can be deferred only as long as the apartment has not been handed over to the buyer, the buyer has not paid more than 40% of the price, and no irrevocable power of attorney has been given for registration.
How do I object to a capital gains tax assessment?
In writing, within 30 days of the day the assessment notice was delivered. The objection sets out the grounds and attaches documents, such as an appraiser's opinion on value or receipts for expenses. If the objection is rejected, an appeal is filed with the Appeals Committee within 30 days of the decision.
What happens if the sale of an apartment is not reported on time?
Linkage differences and interest accrue, and a fine may be imposed. Without approval from the Tax Authority the apartment also cannot be registered in the buyer's name, so late reporting delays the completion of the transaction.
