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Drastic Changes in Real Estate Taxes


In recent years there have been drastic changes in taxes pertaining to the purchase and sale of property.  The purpose of these changes has been to flood the market with apartments in the hope that this would bring down prices.

Apartment Building

Several years ago a temporary change was made in the law pertaining to capital gains tax allowing for more exemptions from this tax.  This was engineered to allow holders of multiple apartments to sell them and get exemptions from the tax.  At the same time they raised purchase tax for people desiring to invest in real estate in the hope that the supply of apartments for sale would go up but the amount of apartments for sale would go down.

Nonetheless apartment prices continued to rise.

After the elections of 2013 a new government was formed with a new Minister of Finance.  The lights were on all night every night in the offices of the Ministry of Finance.  The result of all this hard work is the new tax reform that was enacted in the summer of 2013.  This reform has far reaching results for foreign residents and Israelis alike.

In the past the Israelis and foreign residents alike paid a lower purchase tax when purchasing their only apartment and a higher purchase tax when purchasing an additional apartment.

This is still the case for Israelis; however it is not the case for foreign residents.

When a foreign resident purchases an apartment in Israel he will pay the higher purchase tax regardless of whether or not this is his only apartment in Israel.  The foreign resident will always pay the higher purchase tax although he can get a partial refund if he makes aliya within two years.

It should also be noted that purchase tax for expensive apartments has also risen but this is true for Israelis as well.

Major changes have also been made in the realm of capital gains tax as well.

In the past a person could get an exemption from capital gains tax every four years if he owned more than one apartment.  This is no longer the case.

The exemption from capital gains tax is only given to a person who owns one apartment. Someone owning more than one apartment will have to pay capital gains tax.  However, this is only true for Israelis.

Foreign residents selling their apartments in Israel will always pay capital gains tax.  They will have no exemption.  However, it is possible that whatever they pay in capital gains tax in Israel can be deducted from the capital gains tax that they will pay in their country of origin.

It is important to note that the purchase tax for the purchase of commercial property has been raised from 5% to 6% regardless of the nationality of the purchaser.  In addition to this it is important to remember that there is no exemption from capital gains tax for commercial properties.

It is clear that as property prices rise the government will pocket a lot of money due to the rise in purchase tax and capital gains tax.