Selling a home in Israel doesn’t always go as smoothly as you might hope. The easiest way to navigate the maze of tax, legal contracts, payment schedules and more is to plan everything out in advance, know what questions to ask and consult with experienced real estate legal professionals .
Below are eleven important things to consider when selling property in Israel.
- Every real estate transaction in Israel involves two basic taxes: 1) purchase tax paid by the purchaser, and 2) capital gains tax paid by the seller. If you are selling residential property such as a house or apartment, you should consult with your real estate attorney before signing the sales agreement in order to determine if there will be capital gains tax and how much that tax will be.
- Generally, sellers who own only one apartment at a time are entitled to an exemption from capital gains tax once every 18 months. Sellers who own more than one apartment receive an exemption from capital gains tax once every four years.In order to determine tax liability, the tax authorities look at the family as a unit. A husband, wife and minor children are considered a family unit. If one member of the family owns an apartment, that apartment is considered to be owned by the other family members as well, even if it is only registered in one name. So, if you own an apartment in your own name and also jointly own another apartment with your spouse, the tax authorities will treat you as if you both own two apartments. In this situation, you would have to wait four years between sales if you want to get the full capital gains tax exemption for the sale of both apartments.
- If you are not selling the apartment at a profit it is prudent not to ask for the exemption. You will then be able to use the exemption for another sale, even if that sale is within the 18-month or four-year periods.
- If the apartment you are selling was inherited and you are considering selling another apartment in the near future, it is important to do some tax planning at this stage to determine in which order the properties should be sold in order to minimize any tax liabilities.
- If you are selling the apartment at a profit, expenses such as legal fees and real estate agent fees from the purchase and sale of the apartment, interest paid on the mortgage, purchase tax paid during the purchase of the apartment, and improvements made to the apartment may lower the tax due. Remember to save receipts from all transactions and renovations.
- There is no capital gains tax if a parent gives an apartment to his child as a gift. The child will have to pay a 1/3 of the purchase tax.
- There is no estate or inheritance tax in Israel. If you inherit an apartment you can register it in your name without incurring any taxes.
- Before you sell your apartment, check whether or not there is a betterment tax. A betterment tax applies when there is a change in the zoning laws for a certain neighborhood, giving the owners of the apartments there extra building rights. This tax is paid once for each change in the zoning law, either when asking for a building permit to use the extra building rights or when selling the apartment. Betterment tax is usually paid by the seller so before selling it is wise to find out if the tax applies.
- You don’t need to pay off your mortgage when you sell your apartment since a mortgage can be transferred from one apartment to another. If you plan on transferring your mortgage to another property, make sure your real estate attorney knows your situation, since it will affect the payment schedule in your contract.
- If you need the money from the sale of one apartment to fund the purchase of another property, build a buffer zone into your payment schedule between when you receive payments from your buyer and when you need to pay that money forward towards the new property. A week or two between the two dates will help to protect your own payment schedule in case your buyer does not pay on time for any reason.
- Take into account that the last payment you are due to receive for the sale of your apartment may need to be held in escrow by your lawyer. This frequently happens if all the documents necessary for the transfer of rights in the apartment you sold are not available. If you need this money to make a payment on the apartment you are buying you may need to take a bridge loan if this happens.