Capital Gains Tax on a Second Apartment — Complete Legal Guide to Correct Calculation

What is Capital Gains Tax and Why Does It Apply to a Second Apartment?

Capital gains tax is a tax levied on the profit generated from the sale of an asset (primarily real estate) — the difference between the original purchase price and the sale price. When you sell a second apartment, Israeli tax authorities impose capital gains tax on your profit, which is one of the most significant taxes in a real estate transaction.

A second apartment is defined as a property that is not currently in personal ownership and does not serve as a primary residence. Whether you purchased it as an investment, for future needs, or as an alternative asset, capital gains tax applies at the full rate — unlike a primary residence, which may benefit from certain tax breaks.

Why is it important to understand capital gains tax calculation? Because it can significantly impact the net profit you receive from the sale. Through correct calculation, you can identify discounts, partial exemptions, or legal deferrals that will reduce your tax liability. Mandelboim, Gor, Witzman-Gor and Associates, with 18 years of experience in real estate law, can ensure through specialized legal assistance that you pay only what you owe.

Capital Gains Tax Calculation Formula — The Mathematical Basis

The basic formula for calculating capital gains tax is:

Capital Gains Tax = (Sale Price − Purchase Price) × Tax Rate

Simply put: if you purchased an apartment for 1 million shekels and sold it for 1.5 million shekels, the gross profit is 500,000 shekels. The capital gains tax rate (discussed below) applies to this amount, and this is the sum you must pay to the authorities.

However, the actual formula includes adjustments:

• Adjustment for purchase and sale expenses: You can deduct from the gross profit expenses incurred in connection with the purchase (attorney fees, title search, engineering inspections) and with the sale (real estate broker commissions, advertising, inspections).
• Adjustment for property improvement costs: Investments in property improvement (renovations, legal expansion) may reduce the taxable profit.
• Adjustment for inflation: In certain periods, the authorities allow adjustment of the purchase price for official inflation index, which reduces the taxable profit.
• Variable tax rates: The rate itself depends on the holding period, the legal classification of the property, and the taxpayer's status.

Each of these factors requires thorough examination and proper documentation. An error in the assessment of a single expense or the omission of an adjustment could result in an overpayment of taxes.

Capital Gains Tax Rates on a Second Apartment — 2026 Update

In Israel, the capital gains tax rate on a second apartment depends on several factors:

1. Holding Period of the Property

As a general rule, the longer you held the property, the lower the tax rate. The approach in case law is that a profit accumulated over many years is taxed at a lower rate than a profit accumulated quickly. This is one reason why long-term holding may be a legal advantage.

2. Taxpayer Type (Individual / Corporation / Business Owner)

If you are an individual, the tax rate may be different from if the property is owned by a corporation or business owner. Corporations are subject to different, and sometimes higher, tax rates.

3. Total Income and Profit Category

Profit from the sale of a property is sometimes classified as "other income" or "business income," depending on the circumstances. This affects the applicable rate.

In the current period (2026), capital gains tax rates on a second apartment generally range from 25% to 35% of the profit, but this range may change in accordance with current legislation and new judicial decisions. Each case is examined individually, and it is important to obtain updated legal advice.

Practical Example of Capital Gains Tax Calculation on a Second Apartment

Let's walk through a practical example to understand how the calculation works in practice.

Scenario: You purchased a second apartment in 2015 and sold it in 2025

In this example, without proper handling of recognized expenses or inflation adjustment, you would pay tax on 510,000 ILS (which equals 153,000 ILS in tax). However, with proper legal treatment, the taxable profit would decrease to 460,000 ILS, saving you 15,000 ILS due to applicable legal exemptions.

Important Note: This is an educational example only. Each case is different, and tax rates vary according to current legislation. An experienced real estate attorney will examine your documentation in detail and ensure you do not miss any exemptions or relief that apply to you.

Legal Tips to Reduce Capital Gains Tax on a Second Apartment

If you are in the process of selling a second apartment or planning to do so, here are some legal tips that may help:

1. Thorough Documentation of All Expenses

Keep every invoice, receipt, and document related to the purchase, holding, and sale of the property. Well-documented expenses form the foundation of a strong legal argument with tax authorities. If you cannot recall the exact purchase price, it is sometimes possible to prove it through historical documents.

2. Check Eligibility for Exemptions and Transitional Provisions

At certain times, legislation changes and transitional provisions allow taxpayers who already held the property to receive exemptions. Check with a professional legal firm whether you are entitled to such relief.

3. Examine the Property Classification

Under certain circumstances, a second apartment may be classified as a 'primary residence' for family tax purposes, which may provide relief. This depends on the circumstances, but it is worth checking.

4. Advance Legal Planning

If you know you are going to sell an apartment in the coming months or year, invest in advance legal consultation. An attorney can suggest ways to document expenses, identify legal renovations, or adjust the purchase price — all to legitimately reduce the taxable profit.

5. Review Loans and Mortgage Deeds

If you purchased the apartment with a loan, mortgage interest during the holding period may be relevant to the calculation under certain circumstances. Check with a professional legal firm.

6. Professional Property Valuation

Under certain circumstances, a professional valuation of the property at the time of purchase or at the time of renovations may help support deductions or adjust the purchase price.

How Mandelbaum, Gur, Witzman-Gur & Co. Can Assist with Capital Gains Tax Calculation

Mandelbaum, Gur, Witzman-Gur & Co. has 18 years of experience in real estate law. We assist our clients in accurate calculation of capital gains tax, identification of legal exemptions, and management of all legal aspects of selling a second property.

Our services include:

• Comprehensive review of all documentation: We examine the original purchase agreement, expense invoices, registration certificates, and renovation documentation to ensure recognized expenses are not overlooked.
• Accurate calculation of taxable profit: We use the precise formula, including adjustments for inflation, legal expenses, and capital improvements.
• Identification of exemptions and transitional provisions: We verify whether you are entitled to legal exemptions under current legislation and property status.
• Preventive legal counsel: If you are in the process of selling, we assist you with advance legal planning to minimize taxable profit legally.
• Representation before tax authorities: If there is a matter with tax authorities or if you wish to file an appeal, we will represent you in the process.

We emphasize legal accuracy and thorough documentation. We not only handle tax calculation but also all legal aspects of a real estate transaction—from the purchase agreement to registration with the Land Registry.

First consultation meeting at no cost: We invite you to a free initial consultation meeting at our Ramat Gan office to review your legal status and propose a course of action suited to your circumstances.