Proposed Amendment to Real Estate Taxation Legislation

On January 16, 2024, the Real Estate Tax Law (Appreciation and Acquisition) (Amendment) Memorandum was published, 5774-2024, as part of the plan for fiscal year 2024 (hereinafter: the “Proposed Amendment“). The Proposed Amendment is intended to deal with declines in demand in the real estate market, deriving from an increase in Israel bank interest rate in the past two years and a decline in building starts, inter alia and even more so, in view of the Iron Sword War that broke out on October 7, 2023, the ramifications of which impede the continued expansion of the supply of real estate in Israel.

The Proposed Amendment, according to the explanation notes, will increase state tax revenues and encourage apartment sales in the near term. This will increase apartment supply and lower prices. According to the explanatory notes, these goals will be achieved through two amendments to the Law, one, the cancellation of the beneficial linear calculation applicable to the sale of a residential apartment and second, the fixation of the purchase tax rates applicable to the purchase of a second apartment.


Cancellation of the beneficial linear calculation

In 2014, as part of the Arrangements Law, the Real Estate Tax Law was amended. The exemption granted to an individual under section 49(b)(1) from appreciation tax on the sale of a residential apartment every four years was canceled. On the other hand, this amendment to the law stipulates that an individual who held the apartment before the amendment, will be entitled to a beneficial linear calculation, so that in a linear calculation, appreciation attributable to the period from the date of purchase of the apartment until 2014, will be exempt from tax, while appreciation attributable to the remainder of the period will be subject to tax at a rate of 25%. The Proposed Amendment will cancel the exemption by 2026, and tax will apply to appreciation prior to 2014 on a gradual basis starting in 2026 at a rate of 5% each year, such that starting in 2030, a tax rate of 25% will apply to apartments purchased before 2014 and sold after such date. 


A permanent increase in the purchase tax rate for real estate investors

On November 28, 2021, an amendment to the law was passed, according to which there will be a temporary increase in the purchase tax rate for those who purchase an additional apartment to 8%, until the end of 2024. As part of the Proposed Amendment, the temporary order raising the tax rate only temporarily, will become a permanent rate.

It should be noted however that despite the Proposed Amendment, the Ministry of Finance is examining the possibility of reducing the purchase tax for real estate investors until 2024. This is intended to incentivize investors to enter the market and stimulate it through a short and focused tax rate reduction. The initiative came from developers and contractors, and it should be noted that similar initiatives in the past have led to market price increases.


We recommend considering the sale of apartments purchased before 2014 and with a large value increase until 2026 in order to benefit from the exemption on appreciation attributable to the period from the date of purchase until the end of 2013.


Raveh Ravid & Co.’s Tax Department will be happy to consult on the above subject.