Israel Capital Gains Tax on Property

Understand Mas Shevach (betterment tax) — how much you'll pay when selling Israeli property and strategies to minimize your tax burden.

What is Mas Shevach?

Mas Shevach (betterment tax / capital gains tax on real estate) is Israel's tax on the profit from selling property. The standard rate is 25% on the real appreciation (inflation-adjusted gain) for properties acquired after November 2014. Properties acquired earlier may have partial or full exemptions for the pre-2014 gain portion.

Understanding Mas Shevach is critical for investment planning because it significantly affects net returns. However, several exemptions and deductions exist that can substantially reduce or even eliminate the tax burden with proper planning.

Key Exemptions and Deductions

Single Property Exemption: Israeli residents selling their only residential property are exempt from Mas Shevach (subject to conditions). This is the most valuable exemption but doesn't apply to investment properties or foreign residents.

Deductible Expenses: Purchase costs, renovation expenses, agent commissions, legal fees, and interest on loans used for purchase/improvement can be deducted from the gain, reducing the taxable amount.

Inflation Adjustment: The gain is adjusted for inflation (CPI), so only the real appreciation is taxed. This can significantly reduce the taxable gain during high-inflation periods.

Linear Calculation (Pre-2014): For properties purchased before 2014, only the proportional gain attributable to the post-2014 period is taxed at 25%. The pre-2014 portion may be exempt.

Tax Planning Strategies

Effective Mas Shevach planning includes: timing sales to optimize exemptions, maintaining documentation of all deductible expenses, using the linear calculation for pre-2014 properties, considering corporate vs personal ownership structures, and coordinating with home-country tax obligations under double taxation treaties. Our team connects investors with specialized tax advisors for optimal planning.

Market data

Price range: 25% of real capital gains

Pros

Exemptions available for primary residence, inflation adjustment reduces tax, deductible expenses, clear regulatory framework

Cons

25% rate is significant, no exemption for investment properties or foreign sellers, advance payment required at closing, complex calculations

Frequently asked questions

How much is capital gains tax on Israel property?

The standard rate is 25% on the inflation-adjusted gain. For a property bought for ₪1M and sold for ₪2M (with ₪200K inflation adjustment), the taxable gain is ₪800K and tax is ₪200K. Various exemptions and deductions can significantly reduce this.

Are foreign sellers exempt from any capital gains tax?

Foreign sellers do not qualify for the single-property exemption available to Israeli residents. However, they can still deduct expenses, benefit from inflation adjustments, and use the linear calculation for pre-2014 purchases. Double taxation treaties may provide credits against home-country tax.

When is the tax paid?

A preliminary Mas Shevach payment (advance) is typically deducted at closing, held by the buyer's lawyer, and remitted to the tax authorities. The final calculation and payment/refund is settled within 30-90 days of filing the tax report after the sale.

Plan Your Tax Strategy

Contact Kobi Elkayam for Mas Shevach planning and specialist tax advisor referrals.

Call now: +972-53-658-4252 · קובי אלקיים נדל"ן

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