Understanding Property Taxes In Israel & What You Need To Know About The Newest Tax Cut
Investing in property in Israel is truly a gift. For thousands of years the Jewish people were exiled from their homeland, with the land of Israel being just a dream and wish in their prayers and hearts. Israel became barren and forgotten. Just 72 years ago, Israel became a country, and everything changed. Jews returned to their homeland, the country developed and grew, and is now a major global player and contender in political, economic, and social affairs. Every day new apartments, houses and buildings are being developed across the nation. Jews can not only return to their homeland, but they can develop the land, buy property, and make the land of Israel their home.
With the historical context of the Jewish people and the land of Israel in your mind, one can see that investing in property here is truly a gift. When it comes down to the paperwork and the financial details though, many potential investors get confused by the process, the various taxes, and how much it will all cost them. As a result, some even get turned away. In this post, we hope to clarify property taxes in Israel, let you know the details about the most recent and exciting tax cut, and enable you to invest in the unique and promising investment that is the state of Israel.
Real Estate & Property Taxes In Israel 101
There are a few different property taxes in Israel you should be aware about before buying or selling property here. While the process can depend on a number of factors, important taxes you should be aware of include purchase tax, capital gains tax, income tax, sales tax, municipal tax, and betterment tax.
- Purchase Tax (Mas Rechisha) – when you purchase a residential property in Israel, you are taxed a percent fee for your purchase. This fee must be paid within 60 days of signing the contract. It is important to note that new immigrants (olim chadashim) have a lower purchase tax rate than Israelis. Additionally, if you receive the property as a gift you can also get a partial exemption. There are also instances where your purchase tax can be higher, such as when you are buying a second property.
- Capital Gain Tax (Mas Shevach) – when you sell a property in Israel, you are taxed on any of the profits you make from the sale. There may be exemptions for this tax as well, including if you have not sold an apartment in recent years (consult with a real estate lawyer for specific queries).
- Income tax (Mas Hachnasa) – when you receive money from renters, you are also required to pay a tax. You can get an exemption if your rent is below a certain amount (varies, but is usually around 5,500 shekel)
- Sales Tax (Mas Mechira) – when you sell commercial property or you sell residential property that is part of your business, you are required to pay an additional tax.
- Municipal Tax (Arnona) – is determined based on your location and size of property. This tax is paid once every two months (or for the whole year in advance if you like) to your local municipality. Exemptions are also given to olim chadashim, senior citizens, and low income families.
- Betterment Tax (Mas Hashbacha) – when there is a local-planning improvement or a change in zoning that raises the value of the property. This is also paid to the municipality.
Israel’s Property Purchase Tax
As mentioned above, whenever you purchase a property in Israel, the buyer is responsible to pay a taxed percentage fee on their purchase. The major question for most buyers is what percentage tax they are required to pay. And the answer is that it depends. For example, if you are buying your first property in Israel, your mas rechisha is likely to be significantly lower. In fact, single property owners buying under 1.29 million shekel, don’t have to pay any mas rechisha at all! If you are buying your second or third property in Israel, it’s likely your mas rechisha will be quite a bit higher. New Olim also can get a significant deduction on the purchase tax as well for their first property bought in Israel.
The current rates as of August 2020 are listed below:
- Buying A First Home
- Up to 1.29 million shekel – 0%
- 1.29-3.88 million shekels – 3.5%
- 3.88-5.34 million shekels – 5%
- 5.34-17.79 million shekels – 8%
- 17.79 shekel and up – 10%
- Investors/Buying A Second Home
- Up to 1.29 million shekel – 5%
- 1.29-3.88 million shekels – 6%
- 3.88-5.34 million shekels – 7%
- 5.34-17.79 million shekels – 8%
- 17.79 shekel and up – 10%
- New Olim
- Up to 1.84 million shekel – 0.5%
- 1.84 million shekel and up – 5%
The rates do change from time to time, and exact rates can be complex, so it’s important to always consult with an expert before you officially purchase or sell any property. The difference between 3 and 8 percent could be a lot of money when dealing with purchasing property, so you don’t want to take any risks.
Israel’s Tax Cut On Investment Property
In recent years, the purchase tax for second-time buyers/investors has increased significantly. Initially, second-time buyers only had to pay 3.5% purchase tax when buying new property under 1.29 million shekel. It was then raised by Yair Lapid to 5% and later by Moshe Kahlon to 8%. When you are dealing with the cost of property, that can be a huge financial burden for those looking to invest. Not surprisingly, real estate investment in Israel dropped significantly, building developers struggled, and the market suffered. With the coronavirus pandemic sweeping the country and the world as a whole, the economy took yet another damaging hit.
In an effort to combat the drop in the real estate market, the Israeli parliament (Knesset) just announced that they will be lowering the tax reduction from 8% back to 5%. The aim is to make things easier for investors, especially the average man, to buy additional property and improve the real estate market. In fact, Prime Minister Benjamin Netanyu announced that the public should expect to see tax reductions across a variety of sectors, including clothes, electronics, home appliances, cosmetics, products for babies and others. Real estate though is the biggest impact for many Israelis though, especially because the real estate market in Israel has historically yielded such strong returns. Now that Israelis are no longer held back by higher purchase taxes, they can make an almost certain profitable investment, better their finances, and ultimately contribute to a growing economy.
Why It’s Important
For those thinking about buying new property or investing in a second home, this is huge news. Take for example, an Israeli who was thinking about buying a second home as an investment for 1,200,00 shekel. Before the recent tax cut, they would be paying 96,000 shekel in purchase tax alone. With the new tax cut, they would only have to pay 60,000 shekel, saving them a whopping 36,000 shekel! That’s no pocket change, especially for the average Israeli. More importantly, the tax cut is ensured until the end of the year, but who knows what will happen after that? There is a chance that a higher purchase tax will return after coronavirus subsides.
This is a unique and special opportunity to invest in the right Israel property. Asden for instance, has recently developed luxury apartments in a number of Jerusalem neighborhoods, including Katamon, Park 8, Hamesila, Romema and Hatayasim. These luxury apartments in Jerusalem are not only a great investment financially, but an investment in the future of Jerusalem. Jerusalem is the most unique and special city in the world. The cost of property is only going up. The recent tax cut gives homeowners the chance to invest in additional property, and to invest in their country’s future. To learn more about Asden and their available real estate, check out their site here.