Selling Your Home? Here’s the Secret to Paying Less Taxes (Legally!)

Selling your home in Israel sounds simple, right? You find a buyer, sign a deal, and that’s it. But wait! Did you know there could be hidden taxes lurking around the corner, potentially costing you thousands extra? Let’s unravel this mystery and show you exactly how to keep more money in your pocket.

What’s the Big Deal About Real Estate Taxes?

Every day, many Israelis sell homes, apartments, or even land. But here’s the catch: when you sell real estate, the government usually wants a share through something called Capital Gains Tax (מס שבח).

But what exactly is Capital Gains Tax?
It’s a tax on the profit you make from selling property. If you bought your house years ago, and its value increased, that increase—the profit—is taxable. The good news is there are ways to significantly reduce what you owe, or even avoid paying altogether.

When Can You Avoid Paying Taxes Completely?

If the property you’re selling is your only residential property, you might qualify for a full exemption from taxes, or at least enjoy a very low tax rate. Here’s how it works:

• Profits made on your only residential property before 2014 usually have zero tax.
• Profits made from 2014 onwards are taxed at a lower rate (around 25%).
• Properties owned for a very long time (decades) often get an even lower blended tax rate—sometimes just a few percent.

Sounds good, right? But the problem starts when your property isn’t just a simple apartment or house.

The Hidden Problem: Additional Building Rights

Imagine you’re selling an older house or apartment in a great location, where the new owner can tear it down or add extra floors. This extra potential—called “Additional Building Rights” (זכויות בנייה)—is treated differently by the tax authority.

Here’s where things get tricky:

• The tax office splits the selling price into two parts:
  1. Existing Home Value: This enjoys lower tax rates or even exemptions.
  2. Additional Building Rights: These rights don’t get tax breaks and could be taxed at very high rates—sometimes up to 40%!

Simply put, even if you don’t plan to build, the tax authority considers the “potential” to build as valuable, and it could hit you with a hefty bill.

Examples You Should Know:

Here are common cases where sellers get caught off-guard by additional building rights:

• Old houses: Buyers can demolish them and build taller buildings.
• Apartments in older buildings: Potential to add floors or build rooftop apartments.
• Homes with large yards: Potential to expand or build additional units.

If your property fits any of these cases, you could unknowingly owe thousands in extra taxes.

Surprise! Even Future Potential is Taxable

Another little-known issue is that you’re taxed not only on current rights but also on future building rights—even if they’re just plans on paper and haven’t yet been approved.

For instance, if there’s a municipal plan in process (even if not yet finalized) allowing more construction in your area, the tax authority may charge you extra based on this future potential.

How to Minimize Your Tax Bill (the Smart Way)

Fortunately, you don’t have to just accept this extra tax. There are professional methods to significantly reduce or avoid these costs legally.

Step-by-Step Guide to Reducing Your Real Estate Taxes:

1. Get a Professional Appraisal
   Always hire a certified real estate appraiser (Shammai Mekarkein, שמאי מקרקעין). They help split your property’s selling price into two fair parts: the actual home and additional building rights.
2. Maximize Home Value, Minimize Rights
   The key is assigning as much value as possible to the home itself (lower tax rate) and as little as possible to additional building rights (higher tax rate).
3. Check the Local Plans Carefully
   Don’t rely solely on your municipality or architect. An experienced appraiser knows how to interpret local building plans (“Taba,” תב”ע) favorably, reducing the amount of taxable potential construction.
4. Focus Only on Realistic Value
   You’re only required to pay tax on rights that realistically add value—not every hypothetical building scenario. A good appraiser identifies exactly which rights matter and which ones are just theoretical.

By taking these steps, homeowners frequently cut thousands (even tens of thousands!) from their tax bills.

Too Long; Didn’t Read (TL;DR):

• Capital Gains Tax is charged when selling property in Israel, but exemptions often apply.
• Additional Building Rights can trigger high taxes (up to 40%) even if you don’t build.
• Even future potential building rights (not yet approved) can increase your tax bill.
• Always use a certified appraiser (Shammai Mekarkein) to legally minimize taxes.
• Carefully separating home value from building rights saves you significant money.

Ready to sell smart and save big? Now you know the secrets to keeping more money from your property sale.