If you own a flat in an Israeli TAMA 38 or Pinui Binui project and you get only what the law allows in return, you pay no mas shevach (מס שבח, land appreciation tax) on the deal; anything you receive beyond those limits is taxed. In TAMA 38/1 (strengthen and add) that means only the listed building works, with any extension of your flat capped at 25 square metres. In TAMA 38/2 (demolish and rebuild) it means one new flat, or two in a preferred area, that is no more than 25 square metres bigger than your old one or worth no more than the higher of your old flat’s value or NIS 2,428,100. In Pinui Binui it means a replacement flat, plus any cash for one flat, worth no more than a value ceiling: the highest of 150% of your old flat’s value, a 120 square metre flat in the same compound, or a flat 150% the size of yours, up to 200 square metres. These exemptions come on top of any other exemption you have, such as the single-apartment exemption. The rules are in Chapters Five 4 and Five 5 of the Real Estate Taxation (Appreciation and Purchase) Law, 1963, checked against the law text and the Israel Tax Authority on 29 October 2026.
If TAMA 38 and Pinui Binui are new to you, start with our guide to urban renewal in Israel. This page answers one question for owners: when does the renewal deal itself leave you with no tax bill, and what breaks that?
Why a renewal deal is a taxable sale
For the Tax Authority, signing with a developer is a sale of land rights. In TAMA 38 you give the developer building rights in your building (to add floors and flats) and get works on your building and flat in return. In Pinui Binui you sell the developer your old flat together with the extra building rights, and get a new flat, and sometimes more than one, in return. Because something of value changes hands, mas shevach would normally be due on the gain. The two special chapters of the law switch that tax off, but only for the kinds of consideration they list and only up to their limits.
Two more points follow from the deal being a sale. In a qualifying Pinui Binui deal you also pay no purchase tax (מס רכישה, mas rechisha) on the replacement flat you receive (section 49KD, Hebrew 49כד, of the law). And in both Pinui Binui and TAMA 38/2, when you later sell the new flat, the law carries over the purchase value and purchase date of your old flat, so the gain on that later sale is measured from what you originally paid, not from the day you got the keys.
Which exemption fits your deal, side by side
| Your deal | What you receive | Exempt if | What gets taxed |
|---|---|---|---|
| TAMA 38/1, strengthen and add | Works on your building and flat, no new flat | The building is strengthened against earthquakes under the plan, and everything you get is on the statutory list of construction services (extension up to 25 square metres) | Anything not on the list, such as cash or a swimming pool, is treated as the sale of a separate right and taxed |
| TAMA 38/2, demolish and rebuild | One new flat, or two in a preferred area or for a senior owner, plus rent during construction | The building is rebuilt under the plan; the new flat passes the area test or the value test; your ownership share is unchanged | Extra consideration outside those tests, such as cash, is treated as the sale of a separate right and taxed |
| Pinui Binui, replacement flat only | One replacement flat plus rent during construction | The replacement flat is worth no more than the value ceiling; your ownership share is unchanged | The part of its value above the ceiling |
| Pinui Binui, flat plus cash | One replacement flat and a cash payment, for one flat you sell in the compound | The flat and the cash together are worth no more than the value ceiling | The part of the total above the ceiling |
| Pinui Binui, senior owner | Two replacement flats for one old flat | Same value ceiling test as above, applied to both flats | The part above the ceiling |
Our summary of sections 49KB (49כב), 49LB (49לב), 49LG (49לג) and 49LG1 (49לג1) of the Real Estate Taxation Law, consolidated text on Nevo, checked 29 October 2026. A comparison guide, not an official form.
TAMA 38/1: which works are exempt
In a TAMA 38/1 project (חיזוק, chizuk, strengthening) the building stays standing, the developer strengthens it and adds floors, and the owners give the developer the building rights. Your sale of those rights is exempt from mas shevach if both of these are true:
- The building was actually strengthened against earthquakes under the strengthening plan.
- Everything you received for the rights was construction services as the law defines them, and nothing else.
The law’s list of construction services is short:
- strengthening the building against earthquakes;
- enlarging the existing flats, as long as each flat ends up no more than 25 square metres bigger than it was;
- installing a lift;
- designing and renovating the building;
- payment of related costs as the Tax Authority director sets them.
Anything else the developer gives you, such as cash, a swimming pool or a bigger extension, is not exempt. The law treats it as payment for a separate right and taxes the gain on it, using a proportional share of what you originally paid for the flat. Kol Zchut’s summary also lists parking among the exempt works, but the statutory list does not name it, so if your deal includes a parking space, ask your lawyer how it will be treated.
One trade-off to know about: the cost of the exempt works cannot later be deducted when you sell the flat. You got them tax-free, so they do not reduce your gain a second time.
TAMA 38/2: the area or value test and preferred areas
In a TAMA 38/2 project (הריסה ובנייה מחדש, harisa u’vniya mechadash, demolish and rebuild) the old building is knocked down and rebuilt. Your sale is exempt if the building is rebuilt under the strengthening plan and you receive one replacement flat that passes at least one of these two tests:
- Area test: the new flat is no bigger than your old flat plus 25 square metres.
- Value test: the new flat is worth no more than the higher of your old flat’s value without the extra building rights, or NIS 2,428,100, the amount set in section 49Z(a)(2) of the law, which the Tax Authority has fixed from 2025-01-16 to 2028-01-15.
Rent paid to you for the demolition and rebuilding period, and related costs as the director sets them, are allowed on top. Your ownership share must also stay the same: if you owned 50% of the old flat, you must own 50% of the new one. (For a flat you inherited in full, your share in the new flat must be at least your share in the old one.)
Example (illustrative): your old flat is 80 square metres and worth NIS 1,900,000 without the extra rights. A 100 square metre new flat passes the area test. A 110 square metre new flat fails the area test, but if it is worth NIS 2,300,000 it still passes the value test, because that is below NIS 2,428,100.
Two flats instead of one. You can receive two replacement flats for one old flat, with the tests applied to their combined area or value, if your building is in a preferred area (אזור מוטב, ezor mutav) or you are a senior owner. A preferred area is one in the Negev or the Galilee, as their development authority laws define them, or one ranked in clusters 1 to 6 of the Central Bureau of Statistics socio-economic index. The Tax Authority director publishes the list of localities. Separately, one owner can claim this exemption for at most two flats in the same building, except for public housing flats and flats in the Negev or the Galilee, where that limit does not apply.
Cash in a TAMA 38/2 deal. Cash is normally taxed as payment for a separate right. There is one exception: if you are a senior owner, or the flat is your only home under the single-apartment exemption rules (section 49B(2)), a replacement flat plus cash is tested against the Pinui Binui value ceiling described below.
The TAMA 38 chapter applies to sales made until 31 December 2033. It is tied to the strengthening plan (תכנית החיזוק, tochnit hachizuk) as the 2008 earthquake strengthening law defines it. TAMA 38 itself has expired, on dates that differed between planning areas, so if your project runs under a replacement local plan, ask your lawyer which chapter of the tax law covers it before you rely on these exemptions.
Pinui Binui: the value ceiling
In Pinui Binui (פינוי בינוי, “evacuate and build”) you sell the developer all your rights in a flat in the compound. If what you get back is one replacement flat, the sale is exempt as long as that flat is worth no more than the value ceiling (תקרת השווי, tikrat hashovi). The ceiling is the highest of three amounts:
- 150% of the value of the flat you sold, not counting the value of its extra building rights;
- the value of a 120 square metre flat in the same compound;
- the value of a flat in the same compound that is 150% the size of the flat you sold, but no more than 200 square metres.
Rent for the construction period and related costs as the director sets them come on top. If you also get cash for one flat you sell in the compound, the flat and the cash together are tested against the ceiling. If the total is above the ceiling, you do not lose the whole exemption: the law treats you as selling an exempt right worth up to the ceiling and a taxable right worth the difference, and only that difference is taxed. As in TAMA 38/2, your ownership share in the replacement flat must equal your share in the old one, and a senior owner may receive two replacement flats under the same ceiling.
How the ceiling works on one flat (our arithmetic)
| Step | Assumption or result | Amount |
|---|---|---|
| Old flat | 70 square metres, appraised without extra building rights | NIS 1,600,000 |
| Ceiling option 1 | 150% of NIS 1,600,000 | NIS 2,400,000 |
| Ceiling option 2 | Assumed value of a 120 square metre flat in the compound | NIS 3,000,000 |
| Ceiling option 3 | Assumed value of a 105 square metre flat in the compound (150% of 70 square metres) | NIS 2,650,000 |
| Value ceiling | The highest of the three | NIS 3,000,000 |
| Deal A | Replacement flat worth NIS 2,500,000 plus NIS 300,000 cash | NIS 2,800,000, fully exempt |
| Deal B | Same flat plus NIS 700,000 cash | NIS 3,200,000, of which NIS 200,000 is taxable |
Our worked example of section 49KB (49כב) of the Real Estate Taxation Law. The amounts are illustrative; in a real deal the values come from appraisals, and your lawyer calculates the tax on any taxable part.
The example shows why the appraisals matter as much as the contract. In Deal B the owner would pay mas shevach only on the gain attributed to the NIS 200,000 above the ceiling, using a proportional share of the original purchase cost. If the 120 square metre flat in that compound were valued lower, the ceiling would drop and more of the cash would be taxed.
It does not use up your other exemptions
Both chapters say the same thing: the renewal exemption is in addition to any other mas shevach exemption you are entitled to, and using it does not affect your right to the others, including the single-apartment exemption in Chapter Five 1 of the law. In practice, a tax-free renewal deal does not count against the exemption you may want when you later sell your home. Our page on mas shevach exemptions when selling explains that exemption and its ceiling.
Older owners: selling the new flat and moving to a retirement home
The tax law has its own definition of a senior owner (קשיש, kashish): broadly, someone who on the date the first owner in the building signed was at least 70 years old and had lived in the flat for at least 2 years in a row, or who was entitled to a National Insurance long-term care benefit (גמלת סיעוד, gemlat siud), and still lived there when signing; a spouse living with them counts too. On top of the two-flat option, a senior owner who sells the replacement flat, to anyone or back to the developer, can be exempt if they use the proceeds to buy another home or a right to live in a retirement home (בית אבות, beit avot) worth at least 75% of the sale price, within the window the law sets around the evacuation date. The same route to a retirement home is open in TAMA 38/2.
The Tax Authority has a separate request for an owner who sells a flat in a Pinui Binui compound for cash and buys a right in a retirement home: Form 7020. It is attached to the seller’s declaration (Form 7002), with proof of the retirement-home right if it has already been bought. A seller represented by a lawyer files it online through the representatives’ system; an unrepresented seller attaches it to the online declaration; paper filers hand it in at the regional office. The service is free, and the legal conditions are printed in the form’s own “exemption request data” section, so read them with your lawyer. What the developer must offer older owners in the first place is covered in our page on Pinui Binui rights for owners over 70.
Deadlines and the forms your lawyer files
Most owners never touch these forms; the project lawyer files them. Still, knowing the sequence helps you check nothing was missed, because the deferred sale day below applies only if the notice was given.
- Notice of the deal, within 30 days of signing. For a TAMA 38 deal that is conditional or an option, the seller must notify the Land Taxation director (מיסוי מקרקעין, misui mekarkein) within 30 days of the agreement (section 49LB2). The Tax Authority’s form for deferring the sale day in a TAMA 38 deal is Form 7738, signed by seller and buyer and certified by a lawyer, sent to the regional office with the Tabu extract, the condominium order, the engineer’s strengthening opinion filed with the local committee engineer, the appraisals including the decisive appraiser’s betterment levy assessment, the permit application separating TAMA 38 areas from other areas, and the permit fees paid. In Pinui Binui the duty is the developer’s: it notifies the director within 30 days of each conditional or option agreement (section 49KA, Hebrew 49כא), on Form 7006, with the agreement attached and its signature certified by a lawyer or a Land Taxation officer.
- The sale day is deferred. With the notice in, a conditional deal is not taxed on the signing date. In Pinui Binui the sale day becomes the earliest of the day the condition is met, the day an option is exercised, or the day the developer starts building; in TAMA 38 it is the earlier of the condition or option date and the day the works or the rebuilding start.
- If the deal depends on more building rights, Form 7751 within 30 days. When a sale is conditional on a future plan that increases the building rights, the sale day can move to the day that plan is approved (section 19(3A)), and the declaration and payment dates move with it. All parties must file Form 7751 within 30 days of the day that would otherwise have been the sale day, with the sale agreement, the current and planned town plans (תב”ע, taba) and any construction contract.
- Declaration within 30 days of the sale day, with the exemption track. The seller files the usual sale declaration, including a self-assessment. In Pinui Binui the exemption track is chosen on Form 4922, which is printed, filled in, scanned and attached to the online declaration, or added to a paper declaration where the representative may still file on paper. A senior moving to a retirement home attaches Form 7020.
- The Tax Authority decides within 8 months. Counting from the declaration, the director either accepts the self-assessment and the exemption or issues a best-judgment assessment, which you can contest.
Betterment levy and VAT are separate questions
Everything above is about mas shevach. A renewal project can also raise a betterment levy (היטל השבחה, heitel hashbacha) from the local committee, which has its own urban renewal rules; see our betterment levy guide for sellers. VAT can also come up on the construction services in these deals; it is a separate question from mas shevach, so ask your lawyer how your contract deals with it.
The arnona discount on the new flat
A Pinui Binui replacement flat is usually bigger, so the municipal property tax (ארנונה, arnona) goes up. To soften that, owners who move back into a Pinui Binui project get an arnona discount on the area added to the new flat compared with the old one, for a limited period and in stages, according to the Government Authority for Urban Renewal. Your municipality applies it, so ask it which years and rates apply to your flat; our arnona guide explains how arnona discounts work.
This is general information, not legal or tax advice; confirm with a licensed professional.
Sources
- Real Estate Taxation (Appreciation and Purchase) Law, 1963, consolidated text on Nevo: section 49Z(a)(2) (49ז), Chapter Five 4 on Pinui Binui (from section 49יט) and Chapter Five 5 on the strengthening plan (sections 49לב to 49לו2), checked 29 October 2026.
- Israel Tax Authority, Real Estate Taxation instruction 1/2026 (18 January 2026), section 2(f): the section 49Z amounts for 16 January 2025 to 15 January 2028.
- Israel Tax Authority, Form 4922: exemption request for a sale in a Pinui Binui project.
- Israel Tax Authority, Form 7020: sale in a Pinui Binui compound and purchase of a retirement-home right.
- Israel Tax Authority, Form 7738: notice deferring the sale day in a TAMA 38 deal.
- Israel Tax Authority, Form 7006: deferring the sale day in Pinui Binui.
- Israel Tax Authority, Form 7751: deal conditional on increased building rights.
- Israel Tax Authority, guide for sellers and buyers of land rights, 2026 edition: assessment period and the notices under sections 49KA(a) and 49LB2(a).
- Government Authority for Urban Renewal, questions and answers: the arnona discount on the replacement flat.
- Kol Zchut, mas shevach exemption in Pinui Binui and mas shevach exemption in TAMA 38: plain-language summaries used as research leads.
Has a developer approached your building, or are you weighing whether to sell a flat in a renewal project instead of waiting? Send us the details through our seller enquiry form. We’ll tell you what comparable flats near you are selling for, which gives you and your lawyer realistic numbers to test against the ceiling (a market view, not a licensed appraisal), and talk through whether signing, waiting or selling now fits you best.
