What Taxes Do I Need to Consider When Dealing With Real Estate in Israel?

When buying, selling, or owning real estate in Israel, various taxes apply at different stages of the transaction. Understanding these taxes is essential for planning your investment, avoiding surprises, and optimizing your financial position. Here’s a breakdown of the key taxes you need to consider.

1. Purchase Tax

As a buyer, you must pay Purchase Tax (Mas Rechisha) based on the property’s purchase price. Rates vary depending on factors like residency status, whether the property is your primary residence, and whether you qualify for discounts (such as Olim benefits). Use the Buyitinisrael Tax Calculator.

2. Capital Gains Tax

If you’re selling, Capita Gains Tax (Mas Shevach) applies to the profit made from the sale. Exemptions and reductions exist, particularly for primary residences meeting specific conditions.

3. Betterment Tax

Betterment Tax (Hetel Hashbacha) is imposed when a property gains value due to zoning changes or municipal improvements. The local authority assesses and collects this tax when selling or developing the property.

4. VAT

If you’re buying from a developer, VAT (Ma’am) (currently 18%) is included in the purchase price. However, VAT does not apply to pre-owned (secondhand) homes, meaning the price agreed upon is the final amount without additional VAT.

It’s also important to remember that VAT applies to service fees related to the transaction. Lawyer’s fees, real estate agent commissions, and other professional services all incur an additional 18% VAT, which should be factored into your overall budget.

5. Municipal Tax

As a property owner or tenant, you are responsible for local property taxes (Arnona), which is based on the size, location, and use of the property. Different municipalities set varying rates, and discounts may be available for certain groups, such as seniors, students, or Olim.

6. Rental Income Tax

If you rent out your property, rental income is subject to taxation. There are different tax frameworks depending on the total rental income:

• If your monthly rental income is below a certain threshold (adjusted annually), you may qualify for an exemption.
• If income exceeds the threshold, you can choose between a flat 10% tax on rental income (without deductions) or standard income tax rates, which allow for expense deductions.

Each tax has exemptions, reductions, and conditions that may apply based on your specific circumstances. Consulting with a real estate tax expert can help you optimize your tax liabilities.