What real estate taxes do you need to pay?
If you’re involved in real estate transactions in Israel, whether buying, selling or renting, you need to know about any taxes you may be required to pay.
Land Appreciation Tax or Capital Gains Tax (Mas Shevach)
If you’re selling a house, apartment, land, store, office or any other real estate you may need to pay capital gains tax. This is a tax on any profits you make as a result of selling your property.
Before you sell an apartment it’s prudent to consult with a real estate lawyer about your capital gains tax situation, including whether or not you are eligible for an exemption or discount, how this sale may affect any exemptions you may be eligible for in the future and how to best lower the tax.
Purchase Tax (Mas Rechisha)
Purchase tax is paid by the purchaser in any land transaction. It must be paid within 30 days of signing the contract or a fine may be incurred. The tax is a percentage of the price, calculated on a sliding scale. The scale is updated every year. In certain cases, purchasers may be eligible for a partial exemption from purchase tax.
The current purchase tax levels are available at https://levinlawoffices.co.il/purchase-tax-levels/
Betterment Tax (Hetel Hashbacha)
This is a tax paid when the authorities allow a change of zoning for a neighborhood which causes the value of the property to rise. The tax is 50% of the added value to the property (as assessed by an assessor) due to the change in the zoning.
An example of betterment tax levied is when agricultural land is changed to residential land. Another example is when the building rights to a house or building are increased, allowing the owner to build an addition to the house.
The betterment tax is paid when the owner sells the property or when he requests a building permit.
Municipal Taxes (Arnona)
This is a tax that is paid to the local municipality for the property. It is paid once every two months but can also be paid for the whole year in advance. There are some instances where full or partial exemptions are given.
Property Tax
This is a tax that was levied on land until the year 2000. If you own land from before that year you should check to see if there is a debt to property tax for the period of time terminating in 2000.
Income Tax on Rent
The Israeli Income Tax Authorities charges income tax on rent received by a landlord. A landlord can select how the income tax is calculated from one of three methods and he should crunch the numbers with his accountant.
In all the above taxes there are ways to lower the tax and maximize you profit. This should be done with a real estate lawyer and an accountant.
