Real Estate Taxation — Jerusalem
Real Estate Capital Gains Tax 2026
The Complete Guide
Calculation, exemptions and minimising Capital Gains Tax (Mas Shevach) — Adv. Liron Yitzhak Elmaliach explains. Consulting before a property sale can save tens of thousands of shekels.
What Is Real Estate Capital Gains Tax?
Real Estate Capital Gains Tax (Mas Shevach Mekarka'in) is a tax levied on the seller in a real estate transaction. It applies to the profit generated from selling the property — the real difference between the sale price and the original purchase price, adjusted for inflation. The longer the property was held and the more its value increased, the higher the gain.
The tax rate is 25% of the real gain. However, in practice many sellers pay no capital gains tax at all — thanks to a range of exemptions established under the Real Estate Taxation Law, 5723-1963. The most common exemption is the "primary residential property exemption", which applies to a seller who sells their sole property after holding it for at least 18 months.
It is important to understand: the tax status check must be done before signing a sale agreement — not after. After signing it is difficult to restructure the transaction. An experienced real estate attorney will check eligibility for the exemption, calculate the expected gain, and assist in maximising all available deductions.
How Is Capital Gains Tax Calculated?
The basic formula: Gain = Sale Price − Purchase Price (inflation-adjusted) − Allowable Expenses. The tax is 25% of the resulting gain. However, for properties purchased before 1 January 2014, a linear calculation applies that attributes part of the gain to the period before 2014, to which lower tax brackets apply.
Allowable Expense Deductions: attorney's fees from the original purchase transaction; registration fees; betterment levies paid; major renovation and improvement expenses (provided valid tax invoices exist — not routine maintenance); real mortgage interest during the holding period (under conditions). Every shekel of allowable expense reduces the gain and thus the actual tax.
It is recommended to retain all invoices related to renovations, improvements and construction throughout the ownership period. People often discard receipts that seem "irrelevant" only to discover at the time of sale that they were worth tens of thousands of shekels in tax deductions.
Capital Gains Tax Exemptions — Who Qualifies?
Primary Residential Property Exemption (the most common): A seller who sells a residential property that is their sole property, having held it for at least 18 months, is fully exempt from Capital Gains Tax. This exemption may be used once every 18 months. Condition: the property being sold must be the seller's only property (a small share received through inheritance — under certain conditions — does not disqualify the exemption).
Inheritance Exemption: Receiving a property through inheritance does not constitute a "sale" and is therefore not subject to capital gains tax. However, when the heir sells the inherited property — they may be liable for capital gains on the profit accrued since the original purchase by the deceased (not from the date of inheritance). Proper planning before the sale is critical.
Divorce Exemption: Transfer of real estate between spouses as part of a divorce settlement is not considered a "sale" and is not subject to capital gains tax. The party receiving the property "steps into the shoes" of the transferring party for future gain calculation purposes.
Sales to Heirs and Relatives: Sale of a residential property to first-degree relatives (parents, children, spouses) benefits from a tax relief — one-third of the standard rate — under the conditions set out in the law.
What to Do in Practice — Declaration and Payment
After signing the sale agreement, the seller's attorney must file a declaration with the Tax Authority — Real Estate Taxation Administration — within 30 days of the date of signing. The declaration includes the transaction details, the gain calculation and an application for exemption (where applicable). The Tax Authority reviews the declaration and issues a tax assessment.
If a full exemption applies — the Authority issues a zero-gain certificate, without which the Land Registry registration cannot be completed. If there is a tax liability — it must be paid before receiving the certificate. Therefore in transactions where there is a gain — the attorney typically withholds the tax amount from the purchase proceeds and holds it in trust until payment.
Failure to file on time incurs penalties: 1% of the tax amount for each month of delay, plus arrears interest. Moreover, as long as the capital gains tax matter has not been resolved — the buyer cannot register the property in their name in the Tabu.
Want to know your Capital Gains Tax exposure before signing?
Adv. Liron Yitzhak Elmaliach performs an early Capital Gains Tax assessment and helps maximise available exemptions. Free initial consultation.
Frequently Asked Questions — Capital Gains Tax
Detailed answers to the most common questions about Israeli Real Estate Capital Gains Tax
Free Initial Consultation
Adv. Liron Yitzhak Elmaliach — Real Estate Taxation
Before you sell — check your capital gains tax position. First meeting at no charge and with no commitment. 33 HaShneim Asar, Pisgat Ze'ev, Jerusalem.
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