Capital Gains Tax on Selling Real Estate in Israel: A Comprehensive Guide
The capital gains tax can reach 25% – 30% of the profit made from selling a property in Israel compared to it’s purchase price, but many exemptions apply.
Capital gains tax is a key financial consideration when selling property in Israel. Whether you are an Israeli resident, a foreign national, or a new immigrant, understanding how this tax works is essential to avoid surprises and plan your sale efficiently.
What Is Capital Gains Tax (Mas Shevach)?
Capital gains tax is a tax levied on the profit made from selling a property – that is, the difference between the sale price and the original purchase price, adjusted for inflation and eligible expenses.
This tax is collected by the Israeli Tax Authority, and it applies to both residents and non-residents who sell real estate in Israel. The tax is generally due at the time of the sale or shortly thereafter, and it must be paid before the transfer of ownership is finalized.
How Is Capital Gain Calculated?
The capital gain is the net profit from the sale, calculated as follows:
Capital Gain = Sale Price – Purchase Price – Deductible Expenses
Deductible expenses may include:
- Legal fees
- Brokerage fees
- Renovation and improvement costs (but not routine maintenance)
- Purchase tax paid when the property was bought
- Inflation adjustments (based on the Israeli Consumer Price Index)
It is important to keep all invoices and receipts related to the purchase and improvement of the property to ensure an accurate tax calculation.
Who Must Pay Capital Gains Tax?
Anyone selling a property in Israel may be liable to pay capital gains tax. This includes Israeli citizens, foreign investors and even new immigrants (olim). However, various exemptions or reduced rates may apply depending on the seller’s status and the use of the property.
Exemptions and Reductions
Primary Residence Exemption
Sellers who are disposing of their primary residence may qualify for a partial or full exemption from capital gains tax, under the following conditions:
- The property is used as the seller’s primary residence.
- The seller has owned the property for at least 18 months.
- The property is not being used for rental or business purposes.
As of 2025, a full exemption may apply on capital gains up to NIS 1 million (approx. $270,000). Any profit above that amount may be taxed at the standard rate.
“One Sale Every 4 Years” Rule
In some cases, Israeli residents who do not own additional properties may sell one property every four years and still qualify for an exemption – but this rule is increasingly limited and has been scaled back in recent reforms.
New Immigrants (Olim) Benefit
New immigrants are entitled to special capital gains tax relief on the sale of a property purchased within four years before or seven years after their relocation (Aliyah).
If they sell the property during this window and meet certain criteria, they may benefit from a reduced tax rate or exemption – though it’s not automatic and requires proper documentation.
Capital Gains Tax Rates
Unless exempt, capital gains are generally taxed at the following rates:
Property Type | Tax Rate |
Private residential sale | 25% |
Investment/rental property | Up to 30% |
Corporate-owned property | Varies by structure |
For foreign residents, the same rates usually apply, but additional reporting and documentation may be required.
How and When to Pay
- The tax is reported via Form 7002 to the Israel Tax Authority.
- Payment is typically due within 30 days of signing the sales agreement.
- Penalties and interest may apply if payment is delayed.
The process often involves:
- Appointing a local lawyer or tax advisor.
- Submitting sale documentation and supporting materials.
- Receiving a preliminary tax assessment.
- Finalizing the tax liability after review.
Special Considerations for Foreign Sellers
Foreign residents must generally:
- Submit proof of foreign residency.
- Disclose foreign tax identification numbers (as required by CRS/FATCA).
- May also be taxed in their home country, depending on tax treaties.
It’s highly recommended that foreign sellers consult both an Israeli and an international tax advisor to avoid double taxation or compliance issues.
Summary
Capital gains tax is an important cost to consider when selling real estate in Israel. While standard rates can be as high as 25 – 30% of the gains, many sellers – especially those selling a primary residence or new immigrants – may be eligible for exemptions or reduced rates.
Keeping organized records of your purchase, expenses, and improvements will ensure a more accurate and potentially lower tax bill.
Need help calculating your potential capital gains tax?
Contact ReIsrael to connect with trusted local tax professionals and attorneys who can guide you through the process with clarity and confidence.
