You want to sell your old apartment and have already found your next home, the one you've always dreamed of, at a price you can afford. But have you taken into account the considerable sums you will be required to part with for the benefit of the tax authorities and local authorities?
The various tax payments in Israel constitute a significant portion of the value of real estate transactions in the country. Before you make such a transaction, you should familiarize yourself with the meaning of each of them and how they apply to you. You may end up having to recalculate your route, or you may even be eligible for an exemption. In any case, you should prepare for this in advance. Here are the main taxes that await you:
Purchase tax
Purchase tax is a tax imposed on apartment buyers and varies greatly from buyer to buyer depending on two parameters: the cost of the apartment you purchased and the number of apartments you already own. Purchase tax is mainly relevant to those who are not buying their first apartment, as in this case the purchase tax rate ranges from 8% to 10%. But even if this is your first apartment, you will have to pay purchase tax if the price of the apartment is higher than 1.7 million NIS. The tax rate ranges from 3.5% for an apartment worth up to 2 million NIS and up to 10% tax for an apartment worth over 17 million NIS. It is important to note that the purchase tax on properties that are not used as residential apartments is fixed at 6%.
Who is eligible for relief or exemption?
As mentioned, if this is your first apartment and its price does not exceed 1.7 million NIS, you are not liable for purchase tax. Also, those eligible for additional relief include the disabled, the blind, victims of hostilities, or family members of a soldier who perished in battle, as well as new immigrants up to seven years after entering the country. A person who sells an apartment to a relative, as defined by law, is also entitled to tax relief.
Appreciation tax
Capital gains tax is collected by the state for the profit generated when selling real estate. The profit is calculated based on the difference in the price of the apartment between its purchase and sale, and by deducting the various expenses that were required of you to improve the property upon sale and purchase, such as purchase tax, attorneys' fees, appraiser's fees, brokerage fees, and so on. If this is the second or more apartments you are selling, you will be liable for capital gains tax at a rate of 25%, but it only applies to the profits you made on your apartment since 2014.
Who is eligible for relief or exemption?
If this is your first apartment, you are exempt from capital gains tax, provided that you have owned the apartment for at least 18 months and that the value of the apartment does not exceed 4.5 million NIS. The Real Estate Taxation Law provides several options for receiving relief and tax exemption under various conditions, such as if the additional apartment in your possession is an inherited apartment or if no consideration is expected for the apartment due to its transfer to a relative. It is important that you pay attention to the various qualifications for receiving the exemption, which may be quite complex.
Improvement levy
The improvement levy is collected by the local planning and building committee in cases where the committee approved city building plans (TABA), easements, or excessive use that increased the value of your real estate. If you were the owner of the real estate on the day of approval, you will be required to pay the improvement levy at the rate of half the improvement on the day you sell the apartment or property in your possession. After the plans are approved, the committee will send you a notice regarding the improvement rate in accordance with the assessment schedule. You may contact the committee and request an assessment correction if you find errors in the various details regarding the assessment .
Who is eligible for relief or exemption?
Land improvement will not require an improvement levy in various cases, such as if the land is used by public institutions or if the improvement of the land was done to make accessibility adjustments, etc. If your apartment is about to pass TAMA 38 , the improvement levy will be only 5% of the improvement.
VAT
When you buy a new apartment from a contractor , the price you pay includes value added tax, which is the VAT imposed on every transaction made in Israel. The current VAT rate is 17% of the transaction price. When it comes to a real estate transaction, this is a significant amount. But even if you sell your apartment, you may be required by the tax authorities to pay VAT, as this tax is also imposed on a transaction made by a person who is not registered as a trader but has a 'commercial nature', meaning if the tax authorities identify the sale of your apartment as being of a commercial nature, for example, if two years have not yet passed since the date of purchase, you may pay the hefty tax on it.
Who is eligible for relief or exemption?
As mentioned, if you are a private entity and purchase an apartment from a private individual or sell an apartment in a transaction that is not commercial in nature, you are not supposed to pay VAT on it.
property tax
Property tax is an annual tax imposed by the local authority and is intended to finance the authority's activities, including garbage removal services, education and welfare services, and more. The amount of property tax varies from one authority to another and depends on the size of the property, its purpose and its location in the city. If you rent out your property, the property tax is imposed on your tenants who live in the property and benefit from the local authority's services.
Who is eligible for relief or exemption?
Various population groups are eligible for property tax discounts, including the elderly, Holocaust survivors, new immigrants, independent parents, etc. The discounts vary from authority to authority. Also, if your property is unused and empty, you do not have to pay property tax for a period of six months.
