Capital Gains Tax: 25% on real profit, and exemptions worth hundreds of thousands of shekels

The sale price recorded in the contract is the beginning of the calculation, and the difference between it and the amount on which tax is paid can reach hundreds of thousands of shekels. Capital gains tax is imposed on the difference between the sale price and the purchase price, minus expenses recognized by law, at a rate of 25% on the real capital gain of an individual. The Consumer Price Index increase component is removed from the calculation, so the tax touches the profit generated beyond the erosion of money. This mechanism belongs to the capital side of the tax system, unlike current income from rent which is handled in three separate tracks.

What is deducted from the calculation?

Purchase expenses enter the purchase price side and reduce the capital gain: purchase tax paid at the time, attorney fees for buying and selling, brokerage fees for both transactions, and payments to authorities. Alongside them are improvement expenses (renovations, expansions, or additions), provided there are receipts that were kept. Real interest paid on a mortgage taken out to purchase the apartment is also recognized under certain conditions.

Documentation is where tens of thousands of shekels are lost. A kitchen renovation performed in cash without an invoice remains outside the calculation, and someone who sold an apartment held for twenty years often discovers that relevant documents are scattered between the lawyer's archive, committee reports, and the bank. It is worth opening a dedicated folder on the day of purchase and keeping every receipt related to the property.

Depreciation pulls the bill in the opposite direction: an apartment that was rented out for many years on a track that recognizes expenses reduces the purchase price by the amount of depreciation used, and therefore the taxable gain increases.

The exemption for a single apartment

5,008,000 shekels is the exemption ceiling for the sale of a single residential apartment; any part of the sale price above it is taxable according to the regular rules. Two threshold conditions accompany it:

1. The seller holds the apartment as a residential apartment for at least 18 months before the sale.

2. It is the only apartment registered in their name at the time of the sale.

A share of up to one-third in an additional apartment is ignored for the purpose of the exemption, and in an apartment received as an inheritance, the threshold rises to half. An apartment of a spouse or a minor child is counted together with the seller's apartment, and therefore couples require prior planning.

Inheritance receives a separate exemption track with three conditions: family relationship, the deceased's holding of only one apartment on the day of their death, and a test that checks whether the deceased themselves would have been entitled to the exemption. An apartment received as a gift carries a waiting period set by law, and a sale before it ends takes the transaction out of the scope of the exemption.

Linear calculation and other traps

Apartments purchased before 2014 benefit from an interim mechanism: the gain is divided along the timeline in proportion to the days of holding. The part accumulated until the beginning of 2014 is tax-exempt, and the part from 2014 onwards is taxed at 25%.

For example, an apartment purchased in 2010 for 1,200,000 shekels and sold 16 years later for 2,600,000 shekels (with 120,000 shekels of recognized expenses). The gain amounts to 1,280,000 shekels. Since 4 years of holding preceded the determining date and 12 followed it, 75% of the gain is taxable (960,000 shekels), resulting in a tax of 240,000 shekels instead of 320,000 shekels under a full calculation.

On the remaining taxable balance, there is another tool: spreading the real gain up to four tax years back, which is especially suitable for retirees with low income. Gain also enters the calculation base of the surtax when the sale price crosses a ceiling of around 5.4 million shekels. The report on the transaction is submitted to the Real Estate Tax Manager within 30 days from the date of signing, alongside a self-assessment.