Israel Property Tax Guide

Every tax explained clearly — purchase, ownership, rental income, and sale

Taxes When Buying (Mas Rechisha)

Purchase Tax (Mas Rechisha) is the most significant tax for buyers. Rates are progressive and differ for first-time buyers vs. investors/non-residents. First-time Israeli resident buyers: 0% on first ~1.92M ₪, then 3.5% up to ~2.28M ₪, then 5%, 8%, 10% on higher brackets. Investors/non-residents/second homes: 8% on first ~6.06M ₪, then 10% above. These thresholds are updated annually.

Must be paid within 45 days of signing the purchase contract. Late payment incurs interest and penalties. Your attorney handles the filing.

Taxes During Ownership

Arnona (municipal tax): Annual property tax paid to the local municipality. Varies by city and property size. Typical range: 2,000-8,000 ₪/year for an apartment. Paid monthly or annually (with discount). Rental income tax: Two options: (1) 10% flat tax on gross rental income (no deductions), or (2) Regular tax rates on net rental income (after deducting expenses, depreciation). Most investors choose the 10% flat rate for simplicity. Exemption for monthly rental income up to ~5,654 ₪.

Taxes When Selling (Mas Shevach)

Capital Gains Tax (Mas Shevach): 25% on the real gain (inflation-adjusted). Exemptions exist for selling a sole residence (partial or full exemption). Investors pay on all gains. Depreciation claimed reduces the cost basis. Important: Israel has tax treaties with many countries (US, UK, France, Canada) to avoid double taxation. Consult a tax advisor specializing in international real estate to optimize your tax position.

Pros

No inheritance tax, Tax treaties available, 10% flat rental tax option, Inflation-adjusted capital gains, Professional tax advice accessible

Cons

High purchase tax for investors, 25% capital gains, Arnona varies widely, Complex multi-country situations, Annual filing required

Frequently asked questions

What's the total tax burden for a foreign investor?

Typical scenario: 8% purchase tax when buying, 10% flat tax on rental income during ownership, and 25% capital gains tax when selling (on the profit only). Tax treaties may provide credits in your home country. Professional tax planning can reduce the effective rate significantly.

Is there an inheritance tax in Israel?

No. Israel has no inheritance tax (estate tax). This is one of the major advantages of holding property in Israel. Your heirs receive the property tax-free from the Israeli side. However, your home country may impose inheritance taxes on worldwide assets.

Can I deduct expenses from rental income?

Yes, if you choose the regular tax route (instead of 10% flat tax). Deductible expenses include: mortgage interest, depreciation (2% per year on building value), repairs and maintenance, property management fees, insurance, and Arnona. For most investors, the 10% flat rate is simpler and often more beneficial.

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