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TAXES

Israeli real estate taxation is very complex. Proper tax planning in each transaction can prevent costly errors, and provide the optimal terms for the future resale of the property.

 

TAX STATUS - CATEGORIES

 
Private individuals - persons owning one or many properties not as a company. Usually private individuals will hold residential properties, but will form a company to hold commercial properties due to the tax structure.
 The following represent the taxes for the execution of all real estate transactions:

TAXES ON TRANSACTIONS

1. Purchase Tax: 5% for commercial properties and land, 0.5% - 5% for residential properties depending on if it is a single residence or a second residence. The second home tax rate also depends on the value of the purchase.
2. Sales tax: This tax was instituted 1/1/2000 instead of the property tax on land, which was cancelled. When purchasing land one must verify that back property tax was paid by the owner. The sales tax is on built property and land except for a single private residence buyer which is exempt. Real estate companies and private individuals that hold the property as a fixed asset pay 2.5% of the deal value. Developers and constructors that sell stock pay 0.8% of the deal value.
3. Real Estate Capital Gains Tax: This tax is paid by real estate companies
and private individuals upon the sale of property or when land in expropriated with compensation. The tax is based on the increased value of the property from the date of purchase. The calculation of this tax is complex due to inflationary monetary values and special allowances for historically owned properties. One must note that the "value of the property" is not always the contract sale price.
4. Income Tax: Contractors and developers that sell real estate stock pay income tax instead of capital gains tax on the sale of property. Income tax on rental income is partially exempt on residential properties, but income from commercial properties is taxed at the owner's personal or corporate tax rate.
 

OTHER REAL ESTATE TAXES

Improvement Tax: This tax is paid upon a zoning improvement increased building rights or higher level use. This tax is equal to 50% of the increase in value after the upgrade. Very often the level of this tax can be disputed with the aide of real estate appraisers.
Temporary Improvement Levy: This is used when a property receives temporary zoning for an upgraded use, where there is no permanent zoning for this use. For example the use of offices in an industrial area could require the payment of this tax. It is charged at the same rate as the improvement tax, but allows for upgraded use for 5-10 years.
Municipal Taxes: These taxes are paid by the end-user and not the owner. Vacant property has a one time six months exemption from municipal taxes. End users pay rates according to the use: offices, banks, technology, restaurants, private families, etc.

 

 

Contractors and Developers - hold land as stock and not as a fixed asset.
Real estate companies "igud mikarkein" - any company whose assets are real estate in Israel. This category can be avoided by holding one non-Israeli real estate asset.
Israeli real estate taxation is very complex. Proper tax planning in each transaction can prevent costly errors, and provide the optimal terms for the future resale of the property.













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