Understanding property-related taxes is crucial when buying, owning, or selling real estate in Israel. Whether you’re a foreign investor, new immigrant, or long-time resident, being informed about Israel real estate tax regulations can save you money and prevent unexpected costs. This guide provides practical Israel Real Estate Tax Tips to help you stay compliant and maximize your financial outcomes.
Purchase Tax (Mas Rechisha)
One of the first taxes a buyer encounters is Purchase Tax, or Mas Rechisha. This one-time tax is paid by the buyer and is based on the property’s purchase price. Rates in 2025 are on a tiered scale, with primary residences benefiting from lower brackets. For foreign buyers or those purchasing additional properties, the rates are higher, starting at around 8% and increasing with property value.
Tip: First-time Israeli homebuyers and certain new immigrants may be eligible for reduced rates. This tax must be paid within 60 days of contract signing.
Capital Gains Tax
Capital Gains Tax (Mas Shevach) applies when you sell a property at a profit. In most cases, the gain is taxed at 25%, though various exemptions and deductions may apply. If you’ve owned the property for many years or lived in it as your primary residence, you might qualify for partial or full exemption.
Ensure accurate calculation of capital gains by accounting for renovation expenses, lawyer fees, and inflation adjustments. It’s highly recommended to consult a tax advisor before selling.
Rental Income Taxation
Earning rental income in Israel? It’s taxable. However, there are multiple routes to report this income:
- Exemption Route: If monthly rental income from residential property is below ₪5,471 (as of 2025), you may be exempt.
- 10% Flat Tax Route: Pay a flat 10% on gross income without deductions.
- Standard Tax Route: Declare income, deduct expenses, and pay tax according to your marginal tax rate.
Tip: Choose the method that best aligns with your total income and expenses. Proper reporting ensures compliance and avoids penalties.
Municipal Taxes (Arnona)
Arnona is a local municipal tax paid by the property occupant (owner or tenant). Rates vary depending on location, property size, and usage (residential or commercial).
Municipalities issue annual bills, typically divided into bi-monthly payments. If you own a vacant property, you’re still liable for Arnona unless you apply for a temporary exemption. Rates in Tel Aviv, for example, are among the highest in the country.
Tip: New immigrants and pensioners may apply for discounts under specific conditions.
Tax Benefits for New Immigrants and Returning Residents
Israel offers various tax incentives to new immigrants (Olim Hadashim) and returning residents:
- Up to 10 years of exemption on foreign-source income
- Reduced purchase tax when buying your first home in Israel
- Special deductions and tax credits on rental income and capital gains
Tip: These benefits are time-limited and require specific documentation. It’s essential to apply early and ensure you’re registered properly with the Israel Tax Authority.
Common Mistakes to Avoid
Even seasoned investors can make tax-related errors. Here are common pitfalls:
- Missing payment deadlines for Mas Rechisha or Arnona
- Failing to report rental income correctly
- Assuming exemptions without confirming eligibility
- Overlooking capital gains liabilities when gifting or inheriting property
- Not consulting a tax professional when making complex transactions
Tip: Keep all property-related documents organized and consult professionals before buying, selling, or renting.
Conclusion
Staying informed about Israel property taxes is essential for protecting your investment and staying compliant. From Mas Rechisha to rental income reporting and capital gains, these Israel Real Estate Tax Tips can guide you toward smarter ownership and fewer surprises. For personalized advice, always consult a real estate attorney or licensed tax advisor familiar with the Israeli system.
