Section 22 and Partial Property Sales in Israel

Ever heard of a legal way to pay significantly less tax when selling part of a property?
Most people haven’t—and it could save you tens of thousands of shekels. This is not a loophole or a guaranteed saving. It is a technical allocation issue that must be supported by facts, valuation evidence, and professional tax advice.

Let’s unpack this technical rule—Section 22 of the Real Estate Taxation Law—in plain, everyday language. No legal jargon. Just clarity, strategy, and a bit of real estate wisdom.

Selling Part of a Property Is a Tax Puzzle

Picture this:
You own a building. Maybe you inherited it. Maybe you and a group of investors bought it together years ago. Now you’re ready to sell part of it—not the entire building, just one section.

For example, let’s say your building has:

• A ground-floor commercial unit
• Two upper floors for residential use

You decide to sell only the commercial space on the ground floor. Here’s where it gets interesting…

Understanding Capital Gains Tax (AKA Mas Shevach)

Before diving deeper, let’s break down Mas Shevach—the Israeli version of Capital Gains Tax (CGT).
This is the tax you pay on the profit you make when you sell a property.

Simplified starting point: gain is sale value less the acquisition value allocated to the interest sold. The taxable calculation also accounts for statutory adjustments, eligible expenses and any applicable relief.
Whether tax is payable, and at what rate, depends on the asset, acquisition history, seller and applicable exemptions.

Sounds simple, right? Well, not always…

What Happens When You Sell Just One Part?

Now here’s the tricky part: You didn’t buy just the commercial unit—you bought (or inherited) the entire building.

So when the Tax Authority wants to calculate how much profit you made on the sale, they ask:

• How much did you sell the unit for?
• How much did you buy that specific unit for?

But you never bought just that unit. You bought the whole building. So how do you figure out the “purchase price” of just the section you’re selling?

That’s where Section 22 of the Real Estate Taxation Law comes into play.

Section 22: Allocating Acquisition Value

A partial sale requires an allocation of acquisition value to the interest sold. Ask the lawyer and appraiser to identify the applicable statutory method and the acquisition-date evidence for this property.

Floor area can illustrate a possible allocation, but it is not proof that the same percentage of tax basis belongs to the part sold.

For illustration, a 100-square-meter unit is one-third of a 300-square-meter building’s floor area. That does not establish one-third of its acquisition value.

A purely area-based illustration would allocate:

• One-third of the acquisition price to that section, if that allocation is legally and factually justified.
• The corresponding basis to the sale, before other statutory adjustments.

But here’s the catch:
Not all square meters are equal in value.

Value ≠ Size: Some Parts Are Worth More

Let’s say that commercial unit you sold on the ground floor is in a prime location—street-facing, foot traffic, high rent potential. For a hypothetical example, a unit occupying one-third of the area might represent half the acquisition-date value; an appraisal would need to support the actual split.

The question is which allocation the law and acquisition records support.

A supported valuation may affect the calculation, but a lower tax bill is not guaranteed.

Documenting the Value Difference

Here’s the key opportunity: Ask your adviser whether evidence of a different acquisition-date value allocation is relevant to the assessment.

The Supreme Court considered a partial-property valuation dispute in EA 3988/00 (Miron, 27 December 2004). The judgment must be read in full before relying on a particular evidentiary rule.

There’s a twist, though:
You can’t use today’s prices to make your case. You have to show what the value split was at the time you acquired the property—even if that was 10, 20, or 30 years ago.

Sounds impossible? Not really.

How to Do It: Work With a Valuation Expert

You’ll need a real estate appraiser (shamay) to:

• Reconstruct the market value of the part you sold (and the rest of the building)
• Estimate how much that section was worth at the time of purchase

Use an appraisal that explains the records, comparable evidence, assumptions and limitations behind the historical allocation.

A historical valuation should explain the evidence available and its limitations. Do not assume that incomplete evidence is sufficient merely because the valuation concerns an earlier period.

Review and Possible Disagreement

Here’s the kicker: The Tax Authority may examine the allocation and supporting evidence. Be prepared for questions, a different assessment or a formal objection process.

An appraisal does not bind the Tax Authority to the amount claimed.

When an Allocation Review May Matter

Circumstances worth discussing with the appraiser include:

• You’re selling commercial units (which tend to have higher value per square meter)
• The unit has prime location features that increase its market value
• The rest of the building has lower market demand (like old residential floors)

Step-by-Step: Document the Partial-Sale Calculation

1. Know what you’re selling.
   Break down the property: area, use, location, condition.
2. Estimate how much it’s worth.
   Not just the part you’re selling—but the whole building.
3. Get a professional valuation.
   Ask a certified real estate appraiser to reconstruct the values at the time of purchase.
4. Submit your claim to the Tax Authority.
   Include the appraisal and records explaining the proposed acquisition-value allocation, whether or not it differs from the floor-area ratio.
5. Be ready to explain and support the allocation. Acceptance depends on the applicable law, evidence and assessment process.

Section 22 in Five Short Points

• A partial sale requires a supportable allocation of acquisition value to the interest sold.
• A different supported allocation can change the taxable-gain calculation.
• Review the relevant law and case authority with an adviser before relying on an acquisition-date valuation argument.
• Use a qualified appraiser and preserve the evidence and assumptions supporting the historical valuation.
• The resulting tax depends on the accepted allocation and the rest of the statutory calculation.

Do Not Default to the Standard Calculation

This strategy isn’t a loophole. It’s a smart use of the law—and perfectly legal.

So if you (or your client) are planning to sell part of a building, don’t default to the standard tax calculation. Get expert help, dig into the numbers, and you might save a serious chunk of change.

Pay what you owe—but not a shekel more.

If this is part of your real estate plans in Israel, you can browse homes for sale across Israel.

Ready to take the next step? Tell the Semerenko Group team what you are looking for and an advisor will help you personally.

Section 22 valuations and partial sales matter most when you work out the taxable gain and whether the single apartment exemption applies. This is one corner of selling property in Israel.