Real Estate Taxation in Israel — Complete Legal Guide | Attorney Rozil Amir

Real Estate Taxation — Why Is It Important for Property Owners in Israel?

Real estate taxation is one of the most complex issues in Israeli real estate law. Whether you are considering selling a property, purchasing a new home, or planning your financial future, a deep understanding of taxes related to real estate can save you tens of thousands of shekels and protect your rights. Capital gains tax, purchase tax, building levy, brokerage tax, and discount tables — all of these are legal tools that you must master in order to make smart real estate decisions.

Our firm, attorneys specializing in family law and couples in Ramat Gan, has dealt with these issues for decades — not only in divorce and asset division cases, but also in strategic real estate planning, asset realization, and tax planning. On this page, we will provide you with all the information you need to understand the subject in depth, and at the end — we can offer you personal and professional legal advice tailored to your specific circumstances.

What Is Capital Gains Tax in Real Estate?

Capital gains tax is a tax levied on the profit obtained from the sale of real estate in Israel. It is one of the main taxes in this field, and its requirement applies to almost every sale of land or a house, whether it is a primary residence or an investment property. The tax is calculated on the difference between the purchase price (plus permitted expenses) and the sale price.

How Is Capital Gains Tax Calculated? The tax authority determines the original purchase price using the Consumer Price Index. That is, if you purchased a property 15 years ago, the tax authority will adjust the purchase price according to the increase in the index. This means that part of your profit may be "nominal profit" only (index increase) and not real profit. For this part, you may be entitled to substantial discounts.

Capital Gains Tax Rates: The rate varies depending on the type of property, the length of its holding period, and the type of seller (individual, corporation, real estate trader). Generally, the tax rate ranges between 10% and 40% of the profit, but there are substantial discounts for properties sold after a long holding period (for example, 5 years or more), or for properties in the direct ownership of individuals rather than corporations.

Purchase Tax in Real Estate — An Expense You Should Know About

Purchase tax is a tax levied on the buyer of real estate at the time of registering the property in their name at the Land Registry. It is one of the major initial expenses in a purchase transaction, and it is important to plan for it in advance.

Purchase Tax Rates: The rate depends on the value of the property and the type of buyer. For a regular private buyer, the rate ranges between 5% and 8% of the property value (with the rate increasing with the value). There are substantial discounts for eligible buyers (young people, first-time homebuyers, new immigrants, and other categories). For example, a young couple buying their first home may be entitled to a discount of up to 50% of the tax, under certain conditions.

Important to Know: If you are buying a property as a corporation (for example, through a company or investment fund), the tax rate may be substantially higher. This is one of the reasons why it is important to consult with an experienced real estate attorney before signing any purchase agreement.

Building Levy — An Additional Expense in Real Estate Transactions

Building levy is a payment levied on properties used for residential or other purposes, when part of their value derives from public investment in infrastructure. It applies primarily to transactions involving the purchase of new apartments from developers, but also to existing properties under certain conditions.

Who Pays the Building Levy? Generally, the buyer pays the building levy, but this can be negotiated between the parties. In new construction transactions, the developer typically sets the rate according to their data. The rate generally ranges between 6% and 15% of the property value, depending on the geographic area and type of property.

Brokerage Tax and Other Taxes on Real Estate Transactions

In addition to the main taxes mentioned above, there are several additional taxes that may affect a real estate transaction:

• Brokerage Tax: A tax levied on brokerage services in real estate transactions. The rate is generally 1.5%-2% of the property value, but this is negotiable between the parties.
• Tax on Capital Gains Abroad: If you sell a property abroad, you may be subject to a capital gains tax at a different rate than in Israel.
• Tax for Legal Expenses: If the property was mortgaged or was in dispute, there may be a need for additional legal expenses that should be planned.
• Registration Fees: Registration fees at the Land Registry and other government agencies.

Discounts and Rights in Real Estate Taxation — How to Save Money

Israeli tax law grants substantial discounts under certain conditions. These discounts can save you tens of thousands of shekels, but only if you know how to use them correctly.

• Discount for Primary Residence: If you are selling your home (your primary residence), you may be entitled to a substantial discount on capital gains tax, provided you held the property for a certain period of time.
• Discount for New Immigrants: New immigrants to Israel may be entitled to discounts on purchase tax and capital gains tax under certain conditions.
• Discount for Young People and Young Couples: Young buyers (up to a certain age) or couples buying their first home may be entitled to discounts on purchase tax.
• Discount for Properties Sold After a Long Holding Period: If you held the property for 5 years or more, you may be entitled to a substantial discount on capital gains tax.
• Discount for Properties Built on State Land: Under certain conditions, there are discounts on taxes for properties built on land owned by the state.

Real Estate Tax Planning — A Strategy for Optimal Asset Realization

Real estate tax planning is not merely a matter of calculating taxes after a transaction has been completed. It is a process that should begin months or even years before any sale or purchase. Proper planning can save you tens of thousands or even hundreds of thousands of shekels.

Steps in Real Estate Tax Planning:

1. Asset Valuation: For each asset you are considering, conduct a complete assessment of its current value, original purchase price, and holding period. This will help you understand the magnitude of the expected profit and the applicable tax rate.
2. Examination of Entitlement to Discounts: Check whether you are entitled to any discounts based on your category (new immigrant, young person, young couple, etc.). This may significantly impact tax calculation.
3. Timing Planning: Choose the optimal date for the sale. For example, if you are approaching the completion of a 5-year holding period that entitles you to a discount, it may be worthwhile to wait a few more months.
4. Examination of Legal Structure: Under certain conditions, acquisition or sale through a corporation (company) may have different tax implications. This should be considered with the assistance of a legal and tax advisor.
5. Documentation and Record Keeping: Keep all documents related to the asset — invoices, repair expenses, improvements, etc. These can reduce your tax base.

Common Tax Planning Scenarios:

Divorce and Real Estate Division — Tax Implications

In the context of divorce and asset division, real estate taxation becomes a sensitive and important matter. When a couple separates, there is often a need to sell the shared home or transfer some assets between spouses. This can have significant tax implications.

Transfer of real estate between spouses (during marriage or pursuant to a divorce agreement): Generally, transfer of real estate between spouses as part of a divorce agreement is not subject to capital gains tax, under certain conditions. This is called a "transfer without consideration" or "transfer pursuant to agreement". However, it is important to properly document the agreement to avoid tax complications in the future.

Sale of the Shared Home: If spouses decide to sell the shared home as part of a divorce agreement, the sale should be planned with the assistance of a real estate attorney and a tax advisor. The division of profit between the spouses will affect each spouse's individual tax calculation.

Maintenance Agreement and Tax Implications: A maintenance agreement in a divorce must include clear provisions regarding real estate — who will pay the taxes, who will be responsible for maintenance expenses, and how profits from future sales will be divided. This is important to prevent future disputes.

Wills and Inheritance — Real Estate Taxation in the Context of Succession

When real estate is transferred from a decedent to heirs through a will or inheritance, important questions arise regarding taxation. There is not always capital gains tax on real estate transferred through inheritance, but under certain conditions, when the heir sells the property, capital gains tax may apply.

Cost basis in inheritance: When you inherit real property, your cost basis for calculating capital gains tax is typically the property's fair market value on the date of the decedent's death, not the original price at which the decedent purchased it. This can be a significant advantage, as it reduces your gain basis.

Example: If your father purchased a house in 1990 for 100,000 NIS, and its value on the date of his death (2024) was 2,000,000 NIS, you inherit the house at a value of 2,000,000 NIS. If you sell it for 2,200,000 NIS, your gain is only 200,000 NIS (not 2,100,000 NIS). This results in substantial tax savings.

Enduring Power of Attorney and Real Property — What You Need to Know

When you grant an enduring power of attorney (also called "power of attorney"), it is important to clarify the implications regarding real property. If you become incapacitated in the future, the holder of the power of attorney will be able to manage your assets, including the sale of real property.

Tax implications in the context of power of attorney: If the attorney-in-fact sells a property in your name (using the power of attorney), you are still considered the owner of the property and bear full tax responsibility. Conversely, if the power of attorney includes instructions to transfer the property to the name of the attorney-in-fact, this may have different tax implications. It is very important to plan ahead with the assistance of a real estate attorney and tax advisor.

How Our Firm Can Help You with Real Estate Taxation

Our firm, attorneys for families and couples in Ramat Gan, specializes in family law, divorce, real estate, wills, and inheritance. We understand that real estate taxation is a complex and daunting subject, and it is important for you to receive professional and reliable legal advice from an experienced attorney.

With our help, you can:

• Understand all the tax implications of your real estate transaction — purchase or sale.
• Check whether you are entitled to significant discounts that could save you tens of thousands of shekels.
• Plan the optimal timing of the transaction to minimize taxes.
• Receive advice regarding the tax implications of divorce, will, or inheritance on your assets.
• Be confident that all documents are drafted clearly and accurately to prevent legal issues in the future.

Free initial consultation — We offer a free initial consultation, with no obligation. In this call, we can understand your specific circumstances, identify the key issues, and offer you a clear action plan.

Why Choose Us?

• Experience: Many years of representing families and couples in matters of divorce, property division, real estate, wills, and inheritance.
• Personal Representation: Each client receives direct personal representation from an experienced attorney, not from students or junior staff.
• Discretion: We understand that these matters are sensitive and difficult. All information is handled with complete discretion.
• Strategic Thinking: We do not just answer questions — we think strategically to protect your rights and achieve the best result.
• Proximity and Availability: Our office is located in Ramat Gan, and we are available for personal meetings at your convenience.

Next Steps — How to Get Started

If you are interested in legal advice regarding real estate taxation, the next steps are simple:

1. Contact Us: Leave your details in the contact form on this page, or call us directly. We will get back to you quickly.
2. Free Initial Consultation: In the initial call, we can understand your circumstances and offer you a clear action plan.
3. Personal Representation: If you choose to work with us, we will provide you with direct personal representation at every stage of the process.
4. Protected Outcome: We will do everything we can to achieve the best result for you, while protecting your rights.