Israeli Property Sellers Can Offset Capital Gains With Real Estate Losses

In a shift from years of consistent property value increases, Israeli real estate investors are now facing a market slowdown and price drops, leading to losses upon selling. Data from Galit Ben Naim, Deputy Chief Economist at the Ministry of Finance, reveals that in 2025, 47.5% of investors who sold properties held for up to five years did so at a real loss, with this figure reaching 62% in the southern region.

However, sellers are not necessarily forced to absorb these losses entirely. In certain situations, losses from selling a property can be used to offset capital gains from selling stocks or other assets, potentially saving tens of thousands of shekels in taxes. This involves linking the sale of a property with a loss to the sale of capital market investments that generated a profit within the same tax year.

For example, an individual who bought an apartment for 1 million shekels and sold it for 800,000 shekels, incurring a 200,000 shekel loss, could offset a 200,000 shekel capital gain from stock sales. This would reduce or even eliminate the tax liability on that gain.

Certain individuals may lose this tax-offsetting opportunity. These include owners of a single property who automatically claim tax exemptions, potentially forfeiting the ability to sell another property within 18 months, or those selling a property above the exemption ceiling of approximately 5 million shekels. Advocate and CPA Maor Ampeli advises that when a transaction results in a loss, it's crucial to assess whether reporting it with full details is more beneficial for tax offsetting purposes, even if it means not immediately claiming a standard exemption.

When calculating the loss, eligible expenses beyond the purchase and sale prices can be included. These may encompass purchase tax, legal fees, brokerage commissions, and costs associated with property improvements. Real interest on financing can also be considered under specific conditions. For instance, a property bought for 1 million and sold for 1.05 million might appear to have a 50,000 shekel profit, but if the seller incurred 80,000 shekels in eligible expenses, it results in a 30,000 shekel loss.

The timing of transactions is also key. Losses and gains within the same tax year can be offset. If transactions occur in different years, losses can be carried forward to future tax years but cannot be applied retroactively to offset gains from previous years. In cases where receipts for expenses are missing, Advocate and CPA Shai Einat notes that alternative evidence, such as expert appraisals or insurance documents, may be required to substantiate the loss, though this can be more challenging.