Guide to Property Tax Exemption for Residential Apartments

What is Property Tax and When Can You Obtain an Exemption?

Property tax is a levy imposed on property owners (primarily real estate) as a result of property appreciation due to public works carried out by the state or local authority. When the state or municipality invests in infrastructure — such as laying a new road, lowering a road level, installing water or sewage pipes, or establishing electrical infrastructure — properties in the surrounding area increase in value. The state imposes property tax to capture part of this appreciation.

However, the Property Tax Law (5757-1997) and its related provisions allow, under certain circumstances, exemption from property tax for residential apartments. The exemption is not automatic — strict conditions must be met and an appropriate application must be submitted to the local authority or an appeals committee depending on the circumstances.

On this page, we will review the main conditions for exemption, the procedure, practical examples, and legal tips. Mandelbaum, Gur, Witsman-Gur and Partners (with experience since 2008 in real estate and property law) assists buyers and sellers in property tax exemption proceedings. First consultation meeting at no cost — let us explain your options.

Who is Entitled to Property Tax Exemption on a Residential Apartment?

Entitlement to property tax exemption depends on the type of property, the identity of the seller (previous owner), and the circumstances of the sale. Below are the main categories:

• Residents in urban renewal projects (tenant relocation and rebuilding): In many cases, residents in TAMA 38 projects or tenant relocation and rebuilding projects who receive a new apartment in exchange for their old apartment are entitled to exemption from property tax on the new apartment. This is part of the government's plan to encourage urban renewal.
• Purchase of a first apartment: Under certain circumstances, a buyer purchasing his first apartment is entitled to partial or full exemption, depending on the rate of appreciation and other conditions established by law.
• Sale within a short period from purchase: If owners purchased a property and sold it within a short period (usually before several years had elapsed), the appreciation attributable to public works may be minimal, and an exemption or reduction may be obtained.
• Sale by a non-commercial owner: In cases where the seller is not engaged in the business of buying and selling real estate, reductions in property tax calculation may be obtained.

Legal Conditions for Property Tax Exemption

To obtain significant exemption from property tax, cumulative conditions must be met:

1. Type of property: The property must be housing — a residential apartment, private house, or residential unit. Commercial or office properties are not entitled to this exemption.
2. Extent of appreciation: You must prove that the appreciation results primarily from public works carried out by the local authority or the state, and not from private investments by the owners.
3. Evidence from the local authority: You must present a certificate or confirmation from the municipality or local authority detailing the public works performed in the area and their dates.
4. Professional appraisal: Sometimes a professional appraisal by a real estate appraiser is required to prove the causal relationship between the public works and the actual appreciation.
5. Date of purchase and sale: The dates must be coordinated with the dates of the public works execution to show that the appreciation occurred in the relevant period.

The Process of Applying for an Exemption from the Betterment Levy

An application for exemption from the betterment levy typically begins at the stage of sale or allocation of the property. Below are the main steps:

Step 1: Document Collection

Before submitting an application, the following documents must be collected:

• The property sales contract or allocation agreement
• A certificate from the local authority detailing public works (works confirmation)
• Plans and dates for the execution of the works
• Property registration certificate in the Land Registry (updated title deed)
• A real estate valuation report (where required)
• Proof of identity and an official application form

Step 2: Submission of the Application to the Local Authority or Betterment Tax Commissioner

The application is submitted to the local authority (municipality or regional council) or to the betterment tax commissioner, depending on the allocated authorities. The form includes details of the property, the owners, the estimated betterment, and legal arguments for exemption.

Step 3: Review and Decision

The authority reviews the application, may raise additional questions, and request further documents. Typically, within several weeks to months, a decision is issued. If the application is approved, a full or partial exemption will be granted. If rejected, an appeal can be filed with the appeals committee.

Step 4: Appeal (if necessary)

If the local authority's decision is rejected, an appeal can be filed with a government appeals committee within a specified timeframe (typically 30 days from notification of the decision). In the appeal, additional evidence and stronger legal arguments can be presented.

Practical Examples: Scenarios and Betterment Levy Exemptions

Let us review several real-world examples demonstrating when an exemption can be achieved and when it is more difficult:

Example 1: Housing in a TAMA 38 Project (Urban Renewal)

A family relocating from an old apartment in Tel Aviv received a new apartment in exchange for their old apartment within a TAMA 38 urban renewal project. The new apartment was allocated at a higher value than the old one due to public betterment (new road, improved infrastructure). In this case, typically a full or partial exemption from the betterment levy can be obtained on the new apartment, as residents benefit from a government incentive to encourage urban renewal.

Example 2: Quick Purchase and Sale

Owners purchased an apartment in a new neighborhood in 2018 and sold it in 2020. During this period, the municipality lowered the road level in the area and installed new water pipes. The apartment increased in value by 15%. However, since the owners sold within only two years and were not engaged in the business of buying and selling, they may obtain a significant reduction in the betterment levy, arguing that they are not commercial operators and the betterment is not a result of their investments.

Example 3: First-Time Purchase in an Improved Neighborhood

A young person purchased his first residential apartment in a neighborhood that recently underwent road level reduction and improved drainage. The apartment increased in value. In certain circumstances, first-time apartment buyers are entitled to reductions in the calculation of the betterment levy, provided they meet additional criteria (age, income, etc.).

Example 4: Commercial Property — No Exemption

Owners of a shop on the ground floor of a residential building purchased the shop in 2015 and sold it in 2022. During this period, the road in front of the shop was significantly improved, which increased the value of the property. However, since the property is commercial (a shop) and not residential, there is no entitlement to a betterment levy exemption as exists for residential apartments. The betterment levy will apply in full.

Comparison Table: Different Scenarios and Exemption Chances

The following table compares different scenarios and their relative exemption prospects:

Important Legal Tips for Obtaining Exemption

Based on years of experience in real estate law, we offer several important tips:

• Act Quickly: The sooner you submit an exemption request (once you become aware of public works), the easier it is to prove the connection between the works and the appreciation.
• Collect Documentation from the Local Authority: Request explicit confirmation from the municipality or regional council regarding the public works, their dates, and location. This is essential for proof.
• Preserve All Documents: Purchase agreement, registration certificates, appraisals, correspondence — every document may be critical in an appeal.
• Consider Investing in an Expert Appraisal: In complex cases, a professional opinion from a licensed appraiser can carry significant weight in the authority's or appeal committee's decision.
• Submit Your Request at the Time of Purchase or Sale: Do not wait years — submit your request soon after the transaction, when data is fresh and easier to gather.
• Prepare Strong Legal Arguments: Do not rely on documents alone — formulate clear legal arguments demonstrating how the public works directly led to the appreciation.

Summary: Key Points to Remember

Appreciation levy exemption for a residential apartment is an important legal right, but it is not automatic. To achieve a meaningful exemption, you must:

1. Prove the property is residential: Residential apartments, private homes, and residential units are entitled; commercial properties are not.
2. Link public works to appreciation: Prove that the appreciation results directly from works carried out by the local authority or the state.
3. Gather strong documents: Certificates from the local authority, sale agreement, land registry document, and appraisal opinion (where appropriate).
4. File a request in time: Do not wait—file a request as soon as possible, especially within one year of the transaction.
5. Prepare for appeal: If your request is rejected, do not give up—file an appeal with improved legal arguments.

Mandelbaum, Gor, Witzman-Gor & Co. guides clients through all stages of the exemption process—from initial assessment through filing the request and appeal if needed. With years of experience since 2008 in real estate and property law, we know how to navigate the administrative system and present strong legal arguments.

Free initial consultation—Let us discuss your situation, assess your exemption prospects, and explain the next steps. Contact the office in Petah Tikva (Uni Netanyahu 8) or Ramat Gan (Donush 1).