Buying Real Estate in Israel: Taxes and Fees
When buying property in Israel, there are three main taxes – purchase tax, capital gains tax, and VAT – to consider, as well as several other fees. An Overview.
Understanding real estate taxes in Israel is essential before making decisions. The unexpected costs can impact the total price of the property, and it is crucial to navigate the Israeli real estate tax system and fees to avoid misunderstandings and be compliant with the law. Here is a simple overview of the most important taxes associated with real estate transactions in Israel as of January 2025.
Purchase Tax (Mas Rekhisha מס רכישה)
The purchase tax, or mas rekhisha, is the most significant tax buyers will encounter when buying property in Israel. This tax is progressive and paid to the Israeli Tax Authority and is calculated based on the purchase price of the property.
- Rates for Israeli residents: The tax rate depends on the value of the property being purchased and whether it is the buyer’s first home in Israel. For first-time homebuyers, the tax rate is more favorable. Below are the general rates for residents:
- Up to NIS 1.98 million (approx. $0.54 million): 0% (if it is the buyer’s only home in Israel)
- NIS 1.98 million – NIS 2.35 million NIS (approx. $540,000 – $640,000): 3.5%
- NIS 2.35 million – NIS 6.05 million (approx. 640,000 – $1.67 million): 5%
- NIS 6.05 million – NIS 20.2 million (approx. $1.67 million – $5.53 million): 8%
- Above NIS 20.2 million (approx. $5.53 million): 10%
- Rates for foreign buyers: For foreign buyers who do not live in Israel, the purchase tax is significantly higher. In some cases, the tax rate can be as high as 8% of the full purchase price, regardless of the property’s value. This is a measure designed to help limit foreign speculation in the local market.
Foreign nationals also have to prove they are not residents of Israel, typically by providing proof of foreign citizenship and/or a non-Israeli address.
(You can find an in-depth look at the purchase tax here.)
Capital Gains Tax (Mas Shevach מס שבח)
When selling real estate in Israel, the seller may be required to pay capital gains tax (mas shevach). This tax is imposed on the profit made from selling the property (the difference between the sale price and the original purchase price), after deducting eligible expenses and adjustments.
- Exemptions: There are exemptions for homeowners who are selling their primary residence. If the property being sold is the seller’s primary residence and they have owned it for at least 18 months, they may be exempt from capital gains tax on up to NIS 1 million of the profit. If the profit exceeds this amount, the excess is subject to capital gains tax.
- Tax Rates: If the property is not the seller’s primary residence, or the exemption does not apply, the tax rate on capital gains is generally 25% of the profit. However, in cases where the property is a rental property or an investment, this rate can increase to 30%.
Sellers should maintain detailed records of purchase price, improvements made to the property, and other relevant documents to ensure accurate calculations of capital gains.
(More on the capital gains tax here.)
Value Added Tax (VAT or Mas Erekh Mosaf מס ערך מוסף)
In some cases, a value added tax (VAT) applies to new properties, particularly when buying directly from a developer. The VAT rate is 18% on the purchase price, and it is typically added to the cost of the property.
- Exemptions: VAT is not charged on the purchase of second-hand homes. However, it may be applied to other types of real estate transactions, such as when buying commercial properties or land from developers.
- Tax Deduction for New Buyers: In some circumstances, first-time homebuyers who purchase new apartments from developers can receive a rebate on the VAT. However, this is subject to specific eligibility criteria and should be clarified with a tax consultant or lawyer.
(Read more on when VAT applies here.)
Municipal Taxes (Arnona)
Once you own property in Israel, you will be required to pay municipal taxes, known as Arnona. These taxes are levied by local municipalities and are based on the size and type of the property.
- How Arnona is calculated: The amount of Arnona you pay depends on factors such as the size of the property, its location, and its intended use (e.g., residential, commercial, or industrial). For residential properties, the tax is usually calculated based on square footage, and different municipalities may have different rates.
- How to pay Arnona: Municipalities send annual or semi-annual Arnona bills, and the payment can be made in installments. The rates can vary greatly between cities and towns, so it’s advisable to check with the local municipality about the specific rate for your property.
Inheritance and Gift Tax
In the case of inheritance or receiving a property as a gift, inheritance tax or gift tax may apply. However, Israel has a no inheritance tax policy for direct descendants (parents, children, etc.). That said, property transfers in the form of gifts can be subject to capital gains tax if the property has appreciated in value since the original purchase.
If you receive a property as a gift or inheritance, you should consult with a tax advisor to determine any potential tax implications.
Real Estate Agent Fees
While not a tax, it’s important to note that if you hire a real estate agent to assist with your purchase, there will be an additional commission fee. Typically, the commission is 2% of the purchase price. The commission is usually paid by the buyer, but this can vary depending on the terms agreed upon between the buyer and agent.
Conclusion
Israel’s real estate tax system involves several layers, each with its own rules and exemptions. The purchase tax is the most significant cost for buyers, with different rates depending on the price of the property and the buyer’s status (resident or foreigner). Capital gains tax applies to sellers, though exemptions exist for those selling their primary residence. VAT can apply in certain situations, and municipal taxes are an ongoing responsibility for property owners.
As the tax laws in Israel can be complex, it’s essential to work with a knowledgeable tax advisor or real estate lawyer to ensure that you understand all of your obligations and minimize your tax liabilities when buying or selling property in Israel.
