Israel Freezes Purchase Tax Brackets Until 2028, Raising Costs for Homebuyers

The Israeli purchase tax brackets for single residential properties are frozen until January 15, 2028, a move that effectively increases the tax burden on homebuyers as property prices rise. Normally, these brackets adjust with inflation, but the freeze means the exemption threshold remains fixed, causing a larger portion of the property's value to be taxed over time. For example, buyers of a single home pay no tax on the first 1,978,745 shekels of the property's value, 3.5% on the next segment up to 2,347,040 shekels, 5% up to 6,055,070 shekels, 8% up to 20,183,565 shekels, and 10% beyond that. A buyer purchasing a home for 2 million shekels pays only a small tax on the amount exceeding the exemption, while a 3 million shekel home incurs tens of thousands of shekels in tax due to the stepped rates.

The tax difference is even more pronounced for buyers of additional properties, such as investors, who pay 8% on the first 6,055,070 shekels and 10% thereafter, with no exemption. For instance, an investor buying a 2 million shekel property pays about 160,000 shekels in purchase tax. This policy serves as a deterrent against investment purchases, as the upfront tax significantly reduces rental yield and delays investment breakeven points.

Homeowners replacing their residence should carefully time the sale of their previous property to maintain single-home buyer status and avoid higher taxes. Holding two properties simultaneously beyond the legal timeframe can trigger the higher tax rates for additional properties, potentially costing hundreds of thousands of shekels more.

There are some targeted exemptions and reductions, such as for disabled buyers purchasing homes up to 2.5 million shekels, new immigrants, and certain family transfers, but conditions vary. Purchase tax also applies to non-residential real estate like land and commercial properties, though under different rules.

Experts warn buyers not to overlook ancillary costs beyond the purchase price and mortgage, including purchase tax, legal fees, brokerage, renovations, and financing expenses. Purchase tax often represents one of the largest additional costs in a real estate transaction.

The full article was originally published by Bizportal.