More on the Upcoming Property Tax Changes in Israel

In my last blog post I wrote about the bad taxation days ahead of us regarding purchase tax for the purchasing of residential property in Israel.  I would now like to write about the other side of the coin, the proposed changes in the law concerning Capital Gains Tax.

Capital Gains Tax is a tax that is imposed on sellers of all types of real estate (residential, commercial, land etc.).  However, according to the current law there are several ways to get an exemption on Capital Gains Tax for the sale of residential real estate.  Unfortunately, under the proposed changes to the law pertaining to the taxation of real estate transactions in Israel those exemptions will be done away with.

Under the current law, anyone owning more than one apartment can sell one of his apartments and get the exemption from Capital Gains Tax if he has not sold an apartment with an exemption from this tax in the last four years.

Under the proposed new law this will not be the case.  Anyone with more than one apartment who wishes to sell one of his apartments will pay Capital Gains Tax.  The next time this seller sells another apartment he will also pay Capital Gains Tax if he still owns other apartments.  Only when this seller is down to his last apartment will he be able to get an exemption from Capital Gains Tax when he sells this last remaining apartment.

Another proposed change in the law is that foreign residents selling an apartment in Israel will not be entitled to the exemption even if it is their only apartment.  This is a definite change for the worse for foreign residents.

It is important to note that several types of expenses can be presented to the tax authorities in order to lower the tax. These expenses include real estate agency fees in the purchase and sale of the apartment, legal fees in the purchase and sale of the apartment, renovation expenses (save receipts), and possibly interest on the mortgage taken to purchase the apartment.

The proposed law is to due to take effect on July 31, 2013.  We do not yet know if the law will pass or not, and probably will not know until a few days before July 31st.   So hold on to your hats because we are headed for interesting tax times.