Do you know the famous saying? “Nothing in life is certain except death and taxes.” Well, what if I told you there is a way to avoid paying taxes on your real estate property legally? Let’s break it down step-by-step.

Step 1: Buying a Property

Imagine you buy an apartment in Tel Aviv. You pay 1 million shekels for it. You are now the proud owner of a nice home!

Step 2: Property Value Goes Up

After a few years, the area becomes very popular. More people want to live there, so your apartment is now worth 2 million shekels. If you sell it now, you would have a profit. Your profit would be 1 million shekels (because 2 million – 1 million = 1 million).

Step 3: Taxes on Profit

In Israel, when you sell a property and earn money (profit), you have to pay taxes to the government. Taxes mean giving a part of your money to the government. If your profit is 1 million shekels, you will need to pay a lot of money in taxes.

But what if you don’t want to pay taxes?

Step 4: Keep Your Property and Still Get Money

Here’s how you do it: you don’t sell your property. Instead, you do something called refinancing.

Refinancing means you go to the bank and say, “My apartment is now worth 2 million shekels, much more than before. Can I please have a new loan?” Because your apartment is now worth more, the bank says “yes” and gives you a bigger loan.

Step 5: Getting Cash Without Paying Taxes

Now the bank gives you 1 million shekels as a loan. You have cash in your pocket. You don’t sell your apartment; you keep owning it. This 1 million shekels you got from the bank is not profit—it’s just a loan. In Israel, a loan is not taxable. This means you do not have to pay taxes on this money.

Example in Numbers:

  • Original cost of apartment: 1 million shekels.
  • New value of apartment after few years: 2 million shekels.
  • Profit if you sell: 1 million shekels (taxable).
  • But instead, you refinance and take a loan: 1 million shekels (not taxable).

Summary (Quick review):

  • You bought a property.
  • The property went up in value.
  • If you sell, you have to pay taxes.
  • If you refinance, you keep the property and get tax-free money.

Now you understand a smart way to legally avoid paying taxes on real estate profits in Israel!

Related articles