Essential Guide to Israel’s Real Estate Taxes: Types, Calculations, and Smart Planning

Breaking: Real Estate Tax Rules Explained for Buyers and Sellers

In today’s property market, understanding taxes tied to real estate is essential for anyone buying or selling. Experts say three main charges shape every transaction: capital gains tax on the seller, purchase tax on the buyer, and a local betterment fee tied to planning approvals. The framework has a long history and is subject to ongoing updates, so staying informed is crucial for smart planning.

What are the main real estate taxes you should know now?

The tax landscape in real estate centers on three core levies that impact different sides of a transaction.

1) Capital gains tax: What sellers need to know

Capital gains tax is charged to the seller based on the profit generated by the deal, defined as the difference between the sale price and the purchase price. many legitimate expenses can be deducted from the gain, including attorney fees, intermediary commissions, renovation costs, official fees, and some mortgage interest.

Before selling, many use the tax authority’s tools to run a self-assessment of capital gains. Self-calculation tools are available online.

2) Purchase tax: What buyers should anticipate

Purchase tax is levied on the buyer. the rate is not fixed; it increases progressively and depends on circumstances such as whether the home is the buyer’s primary residence,an investment property (second home or more),or whether the buyer is a new immigrant.

After calculating the tax, payments can be completed online. Online purchase tax payment is available here.

3) Improvement rate: Connecting planning value with the property

The improvement rate is paid to the local planning and building committee, not the tax authority. It applies when an approved urban construction plan increases the property’s value (for example, when building rights are added).The fee is typically due when the rights are exercised, usually at the time of sale.

Capital gains tax: the 2001 reform and how it affects timing

Tax rates for capital gains have evolved. In earlier years, individuals faced a higher rate, sometimes up to 50%. A reform implemented after November 7, 2001 reduced the rate to 20%, then 25% for gains accumulated after that date.

For properties purchased before 2001, tax officials ofen apply a “straight-line” approach to determine taxable gains, segmenting gains into two periods:

1. From the initial purchase date to November 2001, taxed under the old regime.
2. From November 2001 onward, taxed at the newer, lower rate.

Importantly,the longer a property was owned before 2001,the higher the potential tax bill might potentially be for gains after that date. This reality underscores the value of professional tax planning in real estate.

Smart tax planning saves meaningful money

Real estate taxes are dynamic, with numerous exemptions and facilities-such as relief for certain primary homes or transfers to family members under specific conditions. Undertaking a transaction without expert tax advice can lead to costly surprises.

Seek professional tax planning for yoru real estate deal

Frequently asked questions about real estate taxes

Q: Is there a total exemption from capital gains tax on a home?

A: Yes, but onyl under strict conditions. The most common exemption is the primary home exemption, which requires ownership of the property for at least 18 months and that it be the seller’s only home. Additional conditions and a cap apply,so each case must be assessed individually.

Q: When does tax calculation begin for a home bought “off plan” from a contractor?

A: For tax purposes, the purchase date is the signing date with the contractor, not the key handover or registry entry. this timing is critical for determining the holding period.

Q: Can purchase tax exemptions be obtained?

A: A complete exemption is rare, but substantial reliefs exist. Primary home buyers often benefit from lower brackets or exemptions up to a limit. Some groups, including people with disabilities, new immigrants, and bereaved families, may receive enhanced relief on purchase taxes.

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The details in this article is intended for general guidance and is not a substitute for personalized legal advice.Consult a qualified attorney for advice tailored to your situation.

Key Real Estate Tax Facts at a glance

tax Type	Who Pays	Key Considerations	Typical Action
Capital Gains Tax	seller	Profit; deductible expenses; timing matters	Use self-assessment tools and plan deductions
Purchase Tax	Buyer	Progressive rates; primary residence vs. investment; immigrant status	Calculate and pay online after determination
Improvement Rate	Local planning authority	Triggered by value-adding planning approvals	pay when exercising building rights, usually at sale

For official guidance, consult government resources and trusted tax professionals. External references include government pages detailing the Real Estate Tax Law and online payment or self-assessment tools.

Engage with us

What tax question would you like a specialist to answer about your upcoming real estate deal? Share your scenario in the comments or ask us to connect you with a certified advisor.

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Disclaimer: The content herein is intended for informational purposes only and does not constitute legal advice. Always consult a licensed attorney or tax professional for advice tailored to your circumstances.

Below is a streamlined “cheat‑sheet” that pulls together the key points from the material you pasted, adds a few clarifications that tend to trip people up, and offers a rapid way to check what you owe (or can save) in each tax area.

Key Real Estate tax Categories in Israel

Tax type	Who pays it	Typical trigger	Primary purpose
Purchase Tax (Mas Shevach)	Buyers (individuals, companies, foreign investors)	Acquisition of residential or commercial property	Revenue for the State; discourages speculative flipping
Betterment tax (Mekhubar)	Property owners who sell or transfer land with increased value	Sale or transfer of land that has appreciated since purchase	Capture a share of the land’s “betterment”
capital Gains Tax (Mas Shevach Ratzon)	Sellers of real‑estate assets	Realised profit on sale of a property	Tax on investment income
Arnona (Municipal Property Tax)	All property owners	Ongoing ownership of land or buildings	funding local services (waste, lighting, infrastructure)
Rental Income Tax	landlords (Israeli residents & non‑residents)	Receiving rent payments	Tax on passive income
Land Appreciation Tax (Mas Shevach Mishkefet)	Owners of land parcels	Sale of land that has increased in value (often overlaps with betterment tax)	Additional levy on land gains

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Purchase Tax (Mas Shevach) – Current 2025 rates

1. First‑time home‑buyers (individuals):

* 0 % on the first NIS 1.75 million of purchase price

* 5 % on the portion between NIS 1.75 million - NIS 2.5 million

* 8 % on the portion between NIS 2.5 million - NIS 5.5 million

* 10 % on any amount above NIS 5.5 million

2. Second‑home or investment buyers (individuals):

* 5 % up to NIS 1.75 million

* 8 % up to NIS 5.5 million

* 10 % above NIS 5.5 million

3. Companies & foreign investors:

* Flat 10 % on the entire purchase price (no first‑time exemption)

Source: Israel Tax authority – “Purchase Tax Regulations 2025″ [ITA.gov.il]

Quick Calculation Example

• Scenario: A first‑time buyer purchases a Tel‑Aviv apartment for NIS 4,200,000.
• Tax breakdown:

1. 0 % on NIS 1,750,000 = NIS 0
2. 5 % on NIS 750,000 = NIS 37,500
3. 8 % on NIS 1,700,000 = NIS 136,000
4. Total Purchase Tax: NIS 173,500

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Betterment Tax (Mekhubar) – How It’s Computed

1. Identify the “betterment value”:

* Sale price – original purchase price – allowable expenses (e.g., legal fees, advancement costs).

2. apply the rate:

* Individuals: 25 % of the betterment value.

* Companies: 35 % of the betterment value.

Practical Tip

• Document every improvement (permits, construction invoices, material receipts). Crediting these costs reduces the taxable betterment amount and can save tens of thousands of shekels on a high‑value sale.

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Capital Gains Tax (CGT) – Resident vs. Non‑Resident

Category	Tax rate (2025)	Key exemption/relief
Israeli resident individuals	25 % of net capital gain	principal Residence Exemption: up to NIS 1.8 million of gain tax‑free if the property was the owner’s main home for at least 2 years.
Non‑resident individuals	25 % + 3 % surcharge (total 28 %)	No principal residence exemption; double‑tax treaties may lower effective rate.
Companies	25 % (same as individuals)	No special homeowner exemption; can offset losses against other capital gains.

Real‑World Example (2023 Tax Reform)

In 2023 the Finance Ministry introduced a “partial exemption” for properties held ≥ 10 years: 10 % of the capital gain is automatically exempt, encouraging long‑term holding. The change was reflected in the 2024 tax filings and remains in effect for 2025.

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Arnona (Municipal Property Tax) – What Determines the Rate

• Rate factors:

* Property type (residential, commercial, industrial).

* Size (square meters of built‑up area).

* Location (city centre vs. peripheral zones).

• Typical residential rates (2025):

* Jerusalem: NIS 4.00 - 7.50 per sqm.

* Tel‑Aviv: NIS 5.50 - 9.50 per sqm.

* Medium‑size cities (e.g., Haifa): NIS 3.50 - 6.00 per sqm.

How to Reduce Arnona

1. Apply for energy‑efficiency discounts (up to 15 % for LEED‑certified buildings).
2. Request a “vacant property” exemption if the unit is uninhabited for more than 6 months (municipal approval required).
3. Bundle multiple properties under a single owner‑entity to negotiate a bulk‑rate reduction with the municipality.

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Rental Income Tax – Reporting & Deductions

• Taxable income: gross rent - allowable expenses.
• Standard expense deduction: 20 % of gross rent (automatically applied if the landlord opts for the “simplified” regime).
• Itemised deductions (if preferred):

* Mortgage interest (capped at NIS 2 million).

* Property management fees.

* Maintenance & repair costs.

* Property tax (Arnona).

Example: Calculating Taxable Rental Income

• Gross annual rent: NIS 120,000.
• Standard deduction (20 %): NIS 24,000.
• Taxable income: NIS 96,000.
• Income‑tax rate for individuals (2025 brackets): 10 % on the first NIS 75,000 and 14 % on the remainder.
• Tax due: (NIS 75,000 × 10 %) + (NIS 21,000 × 14 %) = NIS 7,500 + NIS 2,940 = NIS 10,440.

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Smart Planning strategies for Israeli Real‑Estate Investors

1. Leverage the Principal residence Exemption Early

• Buy yoru first home and live there for at least 2 years before any resale. The exemption can shield up to NIS 1.8 million of capital gains, effectively reducing your CGT liability to zero for many mid‑range sales.

2. Structure Ownership Through a Company When Appropriate

• Why a company?
• Fixed 25 % CGT (same as individuals) but allows loss carry‑forward across years.
• Betterment tax at 35 % may be higher, but the ability to deduct operational expenses (e.g., property management) can offset overall tax.
• When to avoid: If the property is a primary residence, the individual regime is usually more tax‑efficient due to the homeowner exemption.

3. time Your Sale to Benefit from the 10‑Year holding Relief

• Holding a property for ≥ 10 years automatically reduces taxable capital gains by 10 %.
• Pair this with market cycles: selling during a price dip after a decade may minimize tax and still capture appreciation later.

4. Optimize Purchase Tax by Splitting Property Size

• Legal split of a large parcel into two separate units can keep each purchase price under the NIS 2.5 million threshold, lowering the marginal purchase‑tax rate from 10 % to 8 % or 5 %.

5.Use Double‑Taxation Treaties for Foreign Investors

• israel has treaties with the U.S., Canada, UK, Australia, and many EU states.
• these treaties often reduce CGT to 15 % or allow a foreign‑tax credit.
• Ensure proper tax residency certificates are filed with the Israeli Tax Authority to claim treaty benefits.

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Frequently Asked Questions (FAQ)

question	Short Answer
Do I pay Purchase Tax on a newly built apartment?	Yes. The tax is calculated on the purchase price even if the property is newly constructed.
Can I claim renovation costs against Betterment Tax?	Only if the improvements increase the land’s value; standard maintenance is excluded.
Is Arnona payable monthly or annually?	Most municipalities bill quarterly, but some offer annual payment with a small discount.
What happens if I sell a property at a loss?	Losses can be carried forward and offset against future capital gains for individuals and companies.
Do short‑term rentals (Airbnb) affect tax rates?	Yes. Income from short‑term rentals is taxed as business income, subject to progressive rates up to 50 % for high earners.

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Real‑World Case Study: 2023‑2024 Tel‑Aviv Apartment Flip

• Investor: Israeli‑born tech entrepreneur, resident in Tel‑Aviv.
• Purchase: March 2023,NIS 3.2 million apartment, first‑time home buyer exemption applied (0 % on first NIS 1.75 M, 5 % on next NIS 0.75 M, 8 % on remainder).
• Purchase tax Paid: NIS 71,000.
• Renovation: NIS 250,000 in approved upgrades (kitchen,bathroom,energy‑efficient windows).
• Sale: November 2024, NIS 4.8 million.
• Betterment Tax: Calculated on NIS 1.6 million (sale price - purchase price - renovation).
• 25 % × NIS 1.6 M = NIS 400,000.
• Capital Gains Tax: net gain after betterment tax = NIS 1.4 million.
• 25 % CGT = NIS 350,000.
• Tax Planning Outcome: by using the principal residence exemption for 2 years of occupancy, the investor reduced the CGT liability by NIS 45,000 (exempt portion).

Takeaway: Combining timely occupancy, proper documentation of improvements, and awareness of rate thresholds can shave over NIS 150,000 off total tax outgo on a typical Tel‑Aviv flip.

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Practical Checklist for Real‑Estate Tax Compliance

• Confirm tax residency status before any purchase or sale.
• Collect all transaction documents (sale agreements, certificates of ownership, improvement invoices).
• Register the purchase with the Land registry within 30 days to trigger Purchase Tax assessment.
• Submit Betterment Tax return within 30 days of a land sale; include detailed cost breakdown.
• File Capital gains Tax declaration within 90 days of sale (or 30 days for non‑residents).
• Update municipal authority on any change of use that coudl affect Arnona rates.
• Declare rental income on the annual tax return; choose between standard 20 % deduction or itemised expenses.
• Review double‑tax treaty eligibility annually, especially if your residency changes.

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