Take the Exemption Or Not?

The law pertaining to the taxation of real estate transactions gives exemption from capital gains tax (Mas Shevach) in several instances.  One of the most common exemptions from capital gains tax is given to someone who sells a residential apartment and has not received an exemption during the previous four years.

Using this exemption restricts the seller from selling another property with an exemption for another four years.  Is it always worthwhile taking the exemption?  The answer is no.  If the seller is selling the property at a loss or the very least, without any profit, he should declare the sale, forgo the exemption and pay capital gains tax in the hefty amount of zero.  If there is no profit there is nothing to tax.  The same is true of other exemptions from capital gains tax given under the law.

When purchasing a property purchase tax must be paid.  This tax is calculated by a sliding scale based on a percentage of the price of the property.  A disabled person can get a partial exemption from this tax twice in his life and a new immigrant (an oleh chadash) can get the exemption once.

However it is not always wise to use to the exemption.  If the price of the apartment is below the first scale (1,084,000 NIS) then a person who is not entitled to any exemption will pay zero tax.  If this is the case it is not worth wasting an exemption of from purchase tax on the purchase of an apartment that is lower than the above amount.

The moral of the story is that you should always crunch the numbers and consider all the ramifications  first.  Don’t use the exemption automatically.  First do the tax calculation with or without the exemption to see what is best.  Consider the restrictions imposed on you for future deals if you use the exemption for the present one.

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