Israel Sets Conditions and Exemptions for Capital Gains Tax on Home Sales

In Israel, sellers of residential properties face a significant capital gains tax (known as "Mas Shevach") on profits made from the sale, calculated as the difference between the purchase and sale prices after deducting allowable expenses. For 2026, the basic tax rate on the real gain is 25%, but various exemptions and calculation methods can reduce or eliminate this tax burden.

The tax applies only to the real gain, excluding inflationary increases, which are not taxed. Sellers can deduct costs such as legal fees, brokerage commissions, purchase tax previously paid, and substantial improvements. A key exemption applies to the sale of a single residential property, where owners can receive a full exemption up to a ceiling of 5,008,000 shekels (valid from 2024 to 2027). To qualify, the property must have been owned for at least 18 months, be the seller's only residence, and no other property should have been sold tax-free in the preceding 18 months.

For properties acquired before January 1, 2014, a "preferred linear calculation" method applies, exempting gains accrued before that date and taxing only post-2014 gains at 25%. Couples are treated as a single tax unit, meaning a property registered to one spouse may qualify as their sole residence for exemption purposes. Properties beyond the single residence exemption or second homes do not qualify for full exemption but may benefit from reduced tax calculations.

The article also clarifies that inheriting a property is not a taxable event, but selling an inherited property may incur tax unless specific exemptions apply. Sellers are advised to monitor market trends and tax authority updates to optimize the timing of their sales and tax liabilities.