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

The Israeli government has frozen the purchase tax brackets for single residential properties until January 15, 2028. Normally, these brackets adjust with inflation, increasing the exemption threshold and tax rates over time. However, this freeze means that as housing prices rise, a larger portion of the property's value becomes taxable, effectively increasing the tax burden on buyers without changing the official rates.

According to the Israel Tax Authority, no purchase tax is paid on the first 1,978,745 shekels of a single home purchase. The tax rates then escalate progressively: 3.5% on the portion between 1,978,745 and 2,347,040 shekels, 5% up to 6,055,070 shekels, 8% up to 20,183,565 shekels, and 10% on any amount above that. For example, a buyer purchasing a home for 2 million shekels pays only a small tax on the amount exceeding the exemption. However, a 3 million shekel home incurs tens of thousands of shekels in tax, illustrating how tax costs rise sharply with price increases.

The most significant difference is between buyers of a single home and those purchasing additional properties. Investors or buyers of second homes pay purchase tax from the first shekel: 8% on the first 6,055,070 shekels and 10% on amounts above that. For a 2 million shekel property, this means about 160,000 shekels in tax, compared to a minimal amount for a single-home buyer. This policy is a key tool to discourage real estate investment by increasing upfront costs.

Buyers replacing their homes should also be cautious. If they buy a new home and sell their previous one within the legally defined timeframe, they may still qualify as single-home buyers. Mistiming this can result in being taxed as a second-home buyer, potentially costing hundreds of thousands of shekels. Special tax reductions exist for people with disabilities, new immigrants, and certain family transactions, but conditions vary.

Experts warn that many buyers mistakenly focus only on the purchase price and mortgage, neglecting additional costs such as purchase tax, legal fees, brokerage, renovations, and financing. Purchase tax often represents one of the largest extra expenses in home buying. Buyers should carefully plan their purchases and sales to minimize tax liabilities.