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  • Writer's pictureAdv. Michael Levine

Important Real Estate Tax Updates 2024-2025

The tax laws in Israel change at a relatively quick pace. Long-standing legislation is frequently modified and court rulings dramatically change the interpretation of the laws and regulations.

The following is a summary of two changes that may considerably impact real estate taxes in the future.



Increase in the Value Added Tax rate

The Minister of Treasury signed an order increasing the Value Added Tax (VAT) rate from 17% to 18%. This change will take effect in January of 2025.

 

While this will apply to all goods and services subject to the VAT law, it is important to note the implications for those who purchased a property "on paper" or "firsthand" from a developer. VAT applies to firsthand purchases and each payment to the developer includes a VAT component. For example, when purchasing a firsthand property for NIS 3,500,000, the buyer is effectively paying NIS 2,991,453 to the developer and NIS 508,547 to the government in the form of VAT.

 

As the VAT rate increases, all payments made to developers in 2025 will effectively increase as the VAT component will be higher.

For example, if the property was purchased in 2024 and there is an outstanding balance of NIS 1,000,000 due in 2025, the payment due to the developer will be NIS 1,008,547. The difference of NIS 8,547 is due to the increased VAT rate.

 

Due to this change, it is advisable to explore the option of paying the developer before 2025 to avoid the additional VAT payment.



Purchase tax rate for new immigrants (Olim)

A bill was introduced recently that, if signed into law, will change the beneficial purchase tax rate for Olim.

 

Currently, a new immigrant is entitled to a unique tax rate when purchasing residential and commercial property.

The current rates are:

·        0.5% of the purchase value until approx. 1,990,000

·        5% on the balance, irrespective of how high the purchase value is.

 

As there is no cap on this rate, it is particularly beneficial when purchasing high-value properties.

According to this rate, the tax on a property of NIS 3,500,000 is approx. NIS 85,500 and the tax on a property of NIS 6,500,000 is approx. NIS 235,500.

 

According to the bill, the rate would be more beneficial when buying lower-value properties but would not be beneficial at all when buying higher-value properties.

The proposed rates are:

·        On a property purchased for less than NIS 2,500,000, there would be no tax on the purchase value up to approx. NIS 1,978,000 and 0.5% of the value until NIS 2,500,000.

·        On a property purchased for NIS 2,500,000 to NIS 4,000,000, the rate would be 0.5% of the purchase value.

·        On a property purchased for more than NIS 4,000,000 there will be no beneficial rate other than the single home rate to which any Israeli resident is entitled.

 

If this bill comes into law, the effective purchase tax on a residential property of NIS 3,500,000 would be NIS 17,500 and the tax on a property of NIS 6,500,000 would be approx. NIS 234,000.

 

When compared to the current rates listed above, we see that the benefit will be more pronounced for those buying lower-value properties but almost irrelevant when buying higher-value properties.

 

The current rates will still apply for those buying commercial property in which they will manage their business.

 

It is important to note that the bill has not yet become law and will not apply to transactions before then. If one is considering buying a higher-value property it may be advisable to use the beneficial rate before the bill becomes law. However, if one is considering buying a lower-value property (that will be used as a primary residence) it may be advisable to wait until the bill is signed into law.



A mistake in applying the various rates or in the tax strategy can lead to tens or hundreds of thousands in unnecessary tax so it is important to consult with an expert before any real estate transaction.


Contact information:

Michael ("Mickey") Levine, Adv.

​​25 KK"L St., Jerusalem

​​Israel Tel: 02-560-9717

US Tel: 646-568-5510

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