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As a non-resident of Israel who owns an apartment in Israel and owns another residential property in their domicile, recent tax amendments by the Israeli tax authorities could affect you. These changes are aimed at increasing the supply of apartments for Israeli residents, at the expense of foreign residents, by abolishing significant tax benefits.

One of the most prominent measures in the new amendment is to cancel the exemption from the capital gains tax, which can be up to 25% tax imposed on the increase in the value of the apartment from the date of its purchase until the day of its sale, for anyone who is not a resident of Israel who owns another residential property, selling the apartment. This means that any non-resident, including heirs, who sells an apartment in Israel will no longer be entitled to a full exemption from the capital gains tax, provided that it is his or her only apartment.

Tax Laws in Israel

Furthermore, the tax laws before the latest amendments entitled anyone who sells an apartment in Israel, whether resident or non-resident, to an almost full exemption from the capital gains tax, provided that it is his or her only apartment. The cancellation of the exemption of capital gains tax for foreign residents requires careful planning to reduce the tax in Israel aggressively.

The new amendment also denies a non-resident entitlement to the Better Linear Tax Reduction, which means that a non-Israeli resident selling a home in Israel acquired before 2014 would be required to pay Land Appreciation Tax spanning the entire period in which the gain accrued. Additionally, a non-Israeli resident would be required to pay Land Appreciation tax under the Old Linear Tax rules.

Finally, the Bill denies the rental exemption to a non-Israeli resident. According to the current law, if a person rents out one or more homes in Israel and the total monthly rent does not exceed NIS 5,471 (in 2023), that person may be exempt from Israeli income tax thereon.

The Recent Tax Amendments and Their Impact on Foreigner Apartment Owners in Israel

The original tax exemption was introduced in the 1990s when large numbers of immigrants from countries in the former Soviet Union began arriving in Israel. The new tax break continues to encourage rentals in place of empty apartments. Still, the favorable tax treatment also incentivizes bricks-and-mortar property investments, which in turn takes homes out of the market as primary residences, and drives up prices. It is important to stay informed of these changes in the law to ensure compliance and avoid any tax consequences.

Rahav Aharoni’s law firm has extensive experience in reducing the new capital gains tax. Your taxes will ultimately depend on several parameters, including but not limited to apartment rights, length of the rental period if any, whether or not the apartment is occupied or empty, size of the apartment, and other variables. Call us for further information and get a free personalized consultation.

Tax Implications of Selling an Apartment in Israel as a Foreigner

  • Capital Gains Tax: When you sell, you may owe a 25% capital gains tax on your profit. However, exemptions and deductions may reduce this amount.
  • Reporting & Paying: You are required to report the sale and make the payment of capital gains tax within 30 days.
  • Tax Treaties to Your Advantage: If your home country has a tax treaty with Israel, you may qualify for reduced or eliminated capital gains tax.
  • Remember to Claim Exemptions & Deductions: Deduct costs for apartment purchase, inflation adjustments, and renovations to lower taxable income.

Is Length of Ownership Relevant When it Comes to Taxes?

Homeowners who have owned their apartments for a long time can benefit from lower taxes.

How is the Profit Calculated?

The difference between the sale price and your original purchase price is adjusted for any approved improvements made to the property.

Rahav D. Aharoni, Adv

My expertise lies in assisting heirs and clients in the identification and acquisition of inherited assets in Israel, resolving estate and real estate conflicts, and facilitating transactions involving Israeli real estate, investments, and businesses. I am dedicated to helping my clients build equity and achieve their goals.

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