New Home Buyers Risk Hefty Purchase Tax If Old Home Sale Is Delayed

Families purchasing a new, larger home before selling their current residence in Israel could face significantly higher purchase tax bills, potentially hundreds of thousands of shekels more than anticipated. Israeli tax law differentiates between a first home and subsequent properties, offering a grace period for those upgrading to sell their old home and still qualify for lower tax rates. Missing this deadline can transform a transaction planned with tens of thousands in tax into a much costlier one.

Purchase tax rates for a first home in 2026 are set at 0% for the first 1,978,745 shekels, 3.5% for the portion up to 2,347,040 shekels, and 5% for the portion up to 6,055,070 shekels. However, for a second property, the rates jump to 8% on the first 6,055,070 shekels and 10% on any amount above that. For instance, a 3 million shekel apartment taxed as a first home would incur approximately 45,538 shekels in purchase tax. The same apartment purchased as a second home would be taxed at 240,000 shekels, a difference of nearly 194,462 shekels, impacting mortgage eligibility and required down payments.

The 8% and 10% rates for subsequent homes were set by a temporary order, currently extended until February 10, 2027, due to Knesset elections. Without a decision from the next government, these rates will revert to lower, permanent tiers. The tax brackets themselves are frozen until January 2028, with updates not accounting for inflation during the freeze period.

To qualify for first-home tax rates when buying a replacement property, individuals generally must sell their previous home within 24 months of purchase for acquisitions from June 2025 onward. Shorter periods of 18 months applied to purchases between June 2023 and May 2025. For new apartments from contractors, the sale deadline is typically 12 months from possession, or from actual delivery if delayed by the buyer. Recent extensions, including a three-month addition due to Operation Iron Swords, have adjusted these deadlines, granting up to 21 or 27 months for certain purchase periods. Buyers are advised to verify their specific contract dates and applicable deadlines.

Both buyer and seller must file a declaration with the Land Authority within 30 days of the sale. While the buyer pays purchase tax, the seller's tax on the old home is assessed separately. If the old home is sold after the deadline, the Tax Authority can demand the difference in purchase tax, plus linkage and interest. Incorrectly declaring the number of properties owned can lead to significant tax discrepancies. The Tax Authority offers a simulator to estimate potential taxes based on property price and ownership.