January 2024 – Capital gains taxes on real estate will be tightened

The war effort necessarily involves increased financing needs for military expenditures. In addition to resorting to public debt, the Israeli Ministry of Finance is also considering raising certain taxes, notably strengthening taxation on certain previously exempted real estate capital gains.

In Israel, the rule is that each real estate sale is subject to capital gains tax (...if there is a capital gain).

The only exception to this rule concerns owners of a single apartment: they are exempt if (1) they have owned the apartment for at least 18 months and (2) if the sale does not exceed 4.8 million shekels. This is the exception to the rule.

Before 2014, there were other exceptions: Owners of multiple apartments were also entitled to an exemption from capital gains tax if they waited 4 years between each sale. In 2014, the Treasury canceled this exemption, but a new method of calculating the tax, called "linear," was created: the capital gain for the period before 2014 was taxed at 0%, then at 25% for the period from 2014 to the date of sale.

Thus, for an apartment acquired in 2003 and sold in 2023 (holding period of 20 years), the 25% tax was only applied for the period from 2014 to 2023 (10 years), the previous period (also 10 years) being exempt. Through linear calculation, the tax was reduced to 12.5% in this case.

In fact, this 2014 provision, although abolishing the exemption known as "once every 4 years," remained very advantageous for long-time multiple-property owners.

The new reform of 2024 precisely eliminates this last derogatory regime. Now, all sellers holding multiple apartments (including those who acquired their apartments before 2014) will be taxed at 25% on the capital gain realized upon sale. The holding period of the property will no longer make any difference. This is therefore bad news for long-time apartment owners who have not yet realized their capital gain.