Israeli Capital Gains Tax – When Are You Eligible for an Exemption?
In this article Advocate Alex Brosh, an Israeli real estate lawyer from Cohen, Decker, Pex & Brosh law firm in Israel, will explain when one can receive an exemption from paying the Israeli capital gains tax (called mas shevach in Hebrew) when selling apartments in light of the recent changes in legislation.
A real estate lawyer is important to retain for a few main reasons. One reason is to assist in finalizing a deal with a second party, namely the buyer or seller of a property. Another reason is to assist with tax declarations, as it is important not to underestimate the importance of a real estate lawyer in dealing with tax declarations to the state’s tax authorities. It should be noted that in the field of real estate tax, many mistakes are made. Therefore, it is important to receive the close accompaniment of a real estate lawyer when making a real estate deal in Israel.
What Is the Israeli Capital Gains Tax?
The purpose of this article is to clarify the principal legislative changes that were recently imposed regarding exemption from payment of the Israeli capital gains tax when selling apartments and private homes. Selling real estate, especially apartments, private residences, buildings, and land involves paying the capital gains tax to the tax authorities. The property seller is required to make this payment. Until recently, the seller of a private apartment or private home was able to make use of legal exemptions that they were entitled to by law.
Legislative Changes Regarding the Seller’s Capital Gains Exemption
Recent amendments in the relevant legislation cancelled most tax exemptions that were available to citizens.
One of the most common exemptions before the amendments came into effect was the Israeli capital gains tax exemption that was granted once every four years. This exemption was granted to anyone who wanted to sell an apartment every four years, regardless of how many apartments they owned at the time of the sale. According to the new amendments, the capital gains tax exemption mentioned was cancelled as of 1 January 2014.
Another Israeli capital gains tax exemption that was available to an individual apartment seller (or private home owner) was the Israeli capital gains tax exemption that was given once every 18 months. According to the new amendments from 1 January 2014, the seller is entitled to make use of this tax exemption only on the condition that they have been the owner of the property for no less than 18 months. On one hand, the law actually made it easier for the seller to receive this exemption in that any seller who has one apartment and also one third of the rights on another can request and receive this exemption.
Israeli Capital Gains Tax Exemption for an Inherited Apartment
The new amendments to legislation left intact the capital gains tax exemption on the sale of an apartment received by inheritance. You will find the necessary terms under which you may receive this capital gains tax exemption:
- The seller is the spouse of the deceased, a descendant, or a descendant’s spouse.
- Before the deceased passed away, he/she was the owner of only one residential apartment.
- The deceased would have been entitled to a capital gains tax exemption had he/she been alive and selling the apartment today.
Whenever possible, a real estate lawyer recommends making use of the aforementioned capital gains tax exemptions.
Capital Gains Tax Exemption When Selling Two Small Apartments for the Purpose of Acquiring a Large Apartment
Prior to the new legislative amendments coming into effect, the law granted the option of receiving a capital gains tax exemption when selling two small apartments for the purpose of acquiring a large apartment instead. This was granted on the condition that the value of the acquired apartment was at least three quarters of the value of the two small apartments. The new amendment has limited the conditions for entitlement to this exemption. Presently, the only seller entitled to this exemption is the one who owns no other property but for those two apartments at the time of their sale.
Capital Gains Tax Exemption for the Transferal of an Apartment as a Gift
In the past, when an apartment was handed to a relative as a gift (according to the legal definition), the person transferring the apartment could enjoy an Israeli capital gains tax exemption. According to the new amendment, transferring apartments between siblings will be exempt from the capital gains tax only on the condition that the apartment was acquired as an inheritance from the parents.
Significant Decrease in Eligibility for an Israeli Capital Gains Tax Exemption
In summary, the new amendments concerning capital gains tax exemptions have significantly reduced the eligibility for receiving a capital gains tax exemption. Likewise, criteria for receiving exemptions that were already legal have become more stringent. Considering that the capital gains tax can reach considerable sums, and the duty of payment can affect the feasibility of the transaction, it is important to meticulously plan each and every deal.
That said, it must be stated that in cases where there is no way of receiving the capital gains tax exemption, the new amendment provides the option to pay the capital gains tax within the framework of linear regression (or linear protection). Sellers who wish to use linear regression and who will abide by the conditions determined in the law will be able to receive significant benefits when calculating the capital gains tax.
For any question regarding Israeli capital gains tax exemptions, buying or selling real estate in Israel, and real estate transactions, Cohen, Decker, Pex & Brosh law firm is at your service.
Please contact our real estate lawyer Alex Brosh who has experience in personal accompaniment through real estate deals in Israel.