What is Purchase Tax (Mas Rechisha)?
Purchase Tax (Mas Rechisha) is a tax that must be paid to the state upon purchasing the rights to any real estate in Israel. Once a contract is signed, a self-assessment should be filed with the Israel Tax Authority, and paid in full, within 60 days. Generally, your real estate attorney who handles the contract for the property purchase deals with the payment of Mas Rechisha. Late payment may incur interest and penalties.
Mas Rechisha is a graduated tax that is applied to the full value of the transaction. The tax brackets are updated and published by the Israel Tax Authority annually, in mid-January, based on the increase in the Home Price Index over the previous year. Usually, the tax thresholds go into effect on January 16 and remain in effect until January 15, of the following year. See updated Purchase Tax thresholds.
In past years, increasing the purchase tax rate on investment properties became a means of driving investors away from the housing market, as part of the government’s efforts to curb the increase in home prices. For the first time, the government took the step of significantly increasing the purchase tax for investors, from a minimum threshold of 5% to a minimum threshold of 8% in 2015, and did so again in November 2021 after they reduced the tax rate during the COVID-19 crisis.
Factors to be considered
Besides the price of the property, other factors that are considered in the purchase tax calculation include the type of property that you purchase, your status in Israel (i.e. resident/tourist/new immigrant), and additional properties owned. Rates also vary for the purchase of rights in real estate intended for non-residential purposes, such as commerce or agriculture, etc.
Single Residence Benefit
If you are an Israeli resident, the tax rate depends on whether the purchase is for your “single residence” in Israel, or if you own any other property, known as “investment property”. For the purchase of your sole residence, the Single Residence Benefit applies. If you are a “home-upgrader”, purchasing a home with the intent to sell and replace your existing and only home, you have 18 months (from the date you purchase a home) to sell your existing home and be taxed as the owner of a “single residence”. (For homes purchased between 07.07.2021 and 05.31.2023, the current home must be sold within 24 months from the date of purchase of the replacement apartment.)
Foreign residents cannot take advantage of the Single Residence Benefit, even for the purchase of a sole property. As a foreign resident, you will be taxed at the same rate as an Israeli “investor” who owns more than one residence in Israel,
As a new immigrant (oleh chadash), you are entitled to enjoy the Aliyah Benefit, reduced mas rechisha tax thresholds, for the purchase of one property only, even if it is not the only residential unit you own in Israel. To qualify for this benefit, the property must be purchased between one year before you make Aliyah and up to seven years afterward, and you must live in the home (not rent it out).
You can also take advantage of the Single Residence Benefit if you make Aliyah and become an Israeli resident within two years of purchasing a home. As an Oleh Chadash, with careful planning, it is possible to benefit from both the Single Residence Benefit and the Aliyah Tax Benefit.
Purchase Tax on new construction
When purchasing new construction, or “off-plan”, Mas Rechisha is applied to the full value of the transaction, including VAT. The purchase tax is calculated at the time of signing the contract and must be paid within 60 days from that date, regardless of when you take possession of the property.
If you are upgrading an existing home via the purchase of new construction from a developer, you can choose to sell your old home either following the guidelines mentioned above or within 12 months from the date of Tofes 4 (Certificate of Occupancy), to allow for the construction process, and benefit from the Single Residence Benefit.
Furthermore, as a new immigrant buying off-plan, you may receive an extension to the Aliyah Benefit on the condition that you make Aliyah within 12 months of receiving Tofes 4, but no later than three years from the date of signing the contract.
Refunds for excess payments
If you have engaged in a real estate transaction in the past, you can check if there is credit due for the overpayment of purchase tax or as the result of a change in Israeli status and request a refund through an application with the Tax Authority.
To calculate the amount due on a real estate transaction, use the Buyitinisrael Purchase Tax Calculator.
This guide is intended to provide the reader with general information and not to serve as legal or other professional advice. Readers are advised to obtain advice from qualified professionals before entering into any real estate transaction.
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