Capital Gains Tax
Since imposed on both sellers and buyers, property taxes in Israel are a major source of income for the state.
The following is for informational purposes only and by no means instead of legal advice.
Capital Gains Tax
Tax imposed on the seller.
The idea is to pay for the property’s increased value during the term between buying the property and selling it.
Claiming the owner has bettered and profited on account of the property’s increased or raised value during this period of time.
Advised by the right professionals and complying with the terms and conditions, a seller may be exempted from paying this tax:
Submitting a timely application for exemption.
The said property meets criteria for qualifying residence. According to the law, qualifying residence is defined as property that its constructions has been completed, it is privately owned (not by an entity) and was used mainly for residential purposes over the past 4 years.
The seller (including seller’s immediate family) has sold all right held in the said property.
Complying with the above mentioned terms and meeting the following criteria, the seller is likely to be exempted from CG tax:
Exemption once every four years
The seller has not sold other property exempted from CG tax over the past four years. In some cases certain exemptions are not considered e.g. property defined as a gift transfer between relatives who are not siblings; parents and children, among spouses and other criteria with regard to inheritance.
Selling an only property
Sellers are entitled to a full tax exemption: if the property they are selling is their sole residence in Israel, and have not sold other residential properties in the preceding eighteen months. Also, they own at least 25 percent of the said property, did not simultaneously own more than one residential property during the preceding four years,and the said property has not been rented under protected rental before 1997.
Selling an inherited property
Exemption from CG tax will be granted when selling an inherited property that is a qualifying residence:
The seller is the testator’s spouse, descendant, or descendant’s spouse (including grandchildren and great-grandchildren).
The property is the testator’s only residential property.
If the testator was alive and had sold the property, he or she would have been exempted from CG tax.
Eligibility is examined on the intended date of sale, not subject to the date of death.
Once only, an Israeli resident is entitled to be exempted from CG tax for selling another residential property (conditions are cumulative):
Providing the owner sold a residential property more than twelve month ago and had bought in the year preceding the current act of selling, or will buy, in Israel or the area, another residential property in the coming year.
Value of both properties sold will not exceed 1.5 M ILS and the cost of property purchased is at least seventy-five percent worth of
both properties sold.
If proceeds from both properties exceed 1.5 M ILS, difference is not eligible for tax relief. If proceeds from both properties exceed 2.5 M no tax relief is granted.
Being only a summary and while each case is judged on its own merits, we strongly recommend consulting with an Israeli real estate attorney.
Imposed on the seller and due whether or not property was sold at profit or loss.
Sales tax is calculated as a percentage (around 2.5 percent) of the price at which property is sold.
However, there are two events in which sales tax percentage is reduced to 0.8 percent:
The property is part of an entity’s inventory.
The property is a qualifying residence (see definition above), and thereof under certain circumstances may enjoy the reduced percentage.
Sale value is property’s value, on the day of transaction, baring no debts or liens.
Usually, consideration reflects sale value. However, authorities may prefer market value in cases they are not convinced consideration is made in good faith, or may have been influenced by a special relationship between parties.