Ido Shacham - Real Estate Tax Solutions

The Betterment Tax (also known as the “improvement tax”) is levied on a real estate property seller, in accordance with the Land Taxation Law (betterment and purchases), 5723 – 1963.

This tax is designed to apply to profits made by the property seller from the transaction. The tax calculation is complex. The principles used for calculations are below:

Tax Calculation: In principle, the improvement is the difference between the property’s selling price (for the current transaction) and the property’s purchase price (based on historic records). The purchase price is linked to the Consumer Price Index.

Watch this video if you’d like to learn more about the calculation of the deduction on sales of apartments with building rights:

Deducting Expenses: Various expenses involved in the purchasing of property and/or its sale and/or development over time (e.g. attorney, appraiser, and tenant removal fees, renovation costs, property taxes, improvement levies, etc.) may be deducted from the betterment tax amount.

Depreciation: Sometimes depreciation is calculated in relation to the purchase price (a building’s depreciated value, as opposed to the land’s value), depending on the number of years between the purchase and the sale – this leads to a reduction in the purchase value and an increase in improvement, for which the tax should be paid.

Tax Rates: Rates depend on many factors, including the property’s purchase and sale date and how the seller acquired the property (e.g. whether it was purchased, received as a gift, inherited, etc.).

Inherited Property: For inherited property, the betterment tax is based on the date and price paid for the property by the testator – the person designating the property’s ownership in a will. However, if the property was inherited from someone who died during the years when estate tax was applied, the purchase price is calculated according to the estate tax amount paid and the purchase date is set as the date of the testator’s death.

Property Received as a Gift: For gifted property, the betterment tax is based on the date and price for which the property was purchased by the gift giver. However, exceptions to this rule apply if the gift giver died during the years when the estate tax was applied, and if registration was not completed prior to their death.

Tax Exemptions for Residential Apartment Sales: When the property receipt meets certain criteria, sellers of residential apartments benefit from tax exemptions on the transaction.

Checking for a Betterment Tax Exemption: The Tax Authority has a calculator for establishing the betterment tax amount for real estate transactions. However, it is highly recommended that the tax aspects of a transaction be carefully looked at with an attorney who specializes in this field before executing any transaction. Legislation is frequently amended and taxation mistakes may result in payments of tens and even hundreds of thousands of shekels.