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 property purchase contract deals with Mas Rechisha’s payment. Late payment may incur interest and penalties.

Mas Rechisha is a graduated tax applied to the total value of a property transaction (see current Purchase Tax thresholds). The Israel Tax Authority updates the tax brackets annually, typically in mid-January, to account for inflation by reflecting the increase in the Home Price Index from the previous year. These updated thresholds generally take effect on January 16 and remain valid until January 15 of the following year. The government has decreed a freeze on purchase tax brackets from 2025 to 2027 to address the current deficit in the state treasury. This freeze, by halting inflation-based adjustments, effectively increases the real tax burden on property buyers as property prices continue to rise.

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 significantly increased the rate for investors from a minimum threshold of 5% to a minimum threshold of 8% in 2015. It did so again in November 2021 after they reduced the tax rate during the COVID-19 crisis. In August 2024, the purchase tax rate for new immigrants was substantially reduced to encourage Aliyah.

Factors to be considered

Other factors considered in the purchase tax calculation besides the property’s price include the type of property you purchase, your status in Israel (e.g., resident/tourist/new immigrant), and additional properties owned. Rates also vary for purchasing rights in real estate for non-residential purposes, such as commerce or agriculture.

Single Residence Benefit

If you are an Israeli resident, the tax rate depends on whether the purchase will be your “single residence” in Israel or if you own any other residences, considered investment property.

The purchased apartment will be your “single residence” even if you own another apartment: i) in which the share of ownership does not exceed one-third (33%); or ii) that you received as an inheritance, and your share does not exceed half (50%); or iii) that is rented on a protected rent since before 1/1/1997.

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 buy a home) to sell your existing home and pay tax as the owner of a “single residence.” (For homes purchased between 07.07.2021 and 31.05.2023, the current home must be sold within 24 months from the replacement apartment’s purchase date.)

Foreign residents cannot take advantage of the Single Residence Benefit, even to purchase their 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.

For a “single residence”, the buyer, his spouse, and children up to 18 are considered the same buyer.

Aliyah Benefit

As a new immigrant (Oleh), you can receive the Aliyah benefit on residential property if you purchase it between one year before making Aliyah and up to seven years afterward (excluding mandatory army duty). The terms of this benefit changed for properties purchased on or after August 15, 2024. Beginning on this date, the qualifying property must be for residential use, your single residence in Israel, and the purchase price must be below 20,183,565 shekels.

If you made Aliyah before August 15, 2024, you can select the “old” Aliyah benefit and use it to purchase a property, even if it is not your single residence in Israel. To qualify for this benefit, the property must be purchased within seven years of your Aliyah (excluding mandatory army duty), and you must use it as your residence (not rent it out).

The Aliyah benefit may only be used one time. If you are purchasing new construction as an Oleh, see below.

Purchase Tax on new construction

When purchasing new construction or “off-plan,” Mas Rechisha is applied to the total value of the transaction, including VAT. The purchase tax is calculated when signing the contract and must be paid within 60 days from that date, regardless of when you take possession of the property. The tax payment can be deferred until 50% of the purchase price is paid; however, interest and inflation will be added to the amount due.

If you are upgrading an existing home through 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 an Oleh buying off-plan, you can enjoy the Aliyah Benefit if you make Aliyah within 12 months of receiving Tofes 4 (Letter of Occupancy) but no later than three years from signing the contract.

Refunds for excess payments

If you have engaged in a real estate transaction in the past, you can check if credit is due for the overpayment of purchase tax or due to a change in Israeli status and request a refund through an application with the Tax Authority.

Use the Buyitinisrael “Mas Rechisha Purchase Tax Calculator”