Couple Appeals Tax Authority Decision on Luxury Villa Sale Deductions
Translated & summarized from Calcalist by baba
A couple who sold a luxury villa for 13.8 million shekels is appealing a Tax Authority decision that limits their deductible construction and design costs to 2.45 million shekels. They claim unique features justify deducting 7.9 million shekels to reduce their capital gains tax. The Tax Authority denied most deductions due to a lack of receipts and invoices, basing its assessment on industry averages. The couple argues that an independent appraisal and the principle of true tax liability should allow for their claimed deductions, especially given the property's age.
The story in 5 lines · by baba
- Couple seeks to deduct 7.9 million shekels in luxury villa design costs from capital gains tax.
- Tax Authority limited deductions to 2.45 million shekels due to lack of receipts.
- The villa in Kfar Shmaryahu sold for 13.8 million shekels.
- Couple appealed to court, citing an independent appraisal supporting their claims.
- Tax Authority stated it would reconsider if proper documentation is provided.
A couple who sold a designer villa in Kfar Shmaryahu last year for 13.8 million shekels is seeking to reduce their capital gains tax by 7.9 million shekels, approximately 60%. They argue that unique construction and design costs for the luxurious property, including a cascading swimming pool, home cinema, elevator, and high-end finishes, should be deducted from the taxable profit. The couple claims these expenses, along with fees for consultants in landscaping, lighting, sound, and smart home systems, should offset the tax burden.
The Israel Tax Authority, however, only agreed to recognize 2.45 million shekels of these costs, citing a lack of supporting documentation such as receipts, invoices, or bank statements proving actual payments. The authority stated its decision was based on standard industry pricing and estimates. The couple has appealed to the court, asserting that an independent appraisal supports their calculation of the expenses and that the Tax Authority should accept it fully.
The villa, a 546-square-meter, seven-room semi-detached house, was sold in April 2025. Capital gains tax is typically calculated at 25% of the real profit, after deducting costs like land price and construction expenses. The couple initially reported a capital gains tax liability of only 274,000 shekels, based on their claimed 7.9 million shekels in construction and design costs. These included specific amounts for the pool, a wooden deck, smart home accessories, the elevator, and the home cinema.
The Tax Authority's decision from last month, attached to the appeal, noted that the couple's claimed expenses were not sufficiently substantiated. It stated that if proper documentation is provided in the future, the authority would be willing to review the case and amend the assessment. The couple's appeal argues that tax regulations should not supersede the principle of true tax liability, especially when dealing with a property built 12 years ago, for which original documentation might be difficult to retrieve, and that appraisal estimates and secondary evidence should be considered.