How much does capital gains tax cost when selling an apartment?

Capital Gains Tax on Apartment Sales — What It Is and Why Understanding Its Cost Matters

Capital gains tax is a tax levied on the profit generated from the sale of real property in Israel. When you sell an apartment, the difference between the original purchase price (plus legal expenses and approved improvements) and the sale price is considered capital gain, and the income from it may be subject to tax. Understanding the cost of capital gains tax is critical for proper financial planning of the sale transaction, and often can significantly impact your net proceeds.

In Israel, capital gains tax is an income tax on capital gains, and its rates vary depending on the type of property, holding period, seller's status (permanent resident, temporary resident, company, individual), and use of the property (residential apartment, investment property, commercial building). Mandelboim, Gor, Witzman-Gor & Co. assists clients with capital gains tax planning and execution of real estate sales transactions in a legally compliant and fully coordinated manner.

Why is understanding capital gains tax cost essential?

• Accurate financial planning: Knowing the exact tax expense helps you plan the net proceeds from the apartment sale and decide on next steps.
• Avoiding legal surprises: Lack of knowledge about capital gains tax costs can lead to tax claims, interest, and additional legal expenses.
• Eligibility for exemptions and legal tax savings: Significant exemptions exist for certain sellers (first residential property, sellers aged 60 and over, etc.), and tax deductions on index linkage and interest.
• Coordination with accountant: Proper legal advice enables you to align the tax with your accountant and avoid errors in tax returns.

Capital Gains Tax Rates — What They Are and How They Are Calculated

The capital gains tax rate in Israel is not fixed and absolute, but varies based on several factors. Generally, the tax rate on capital gains from real property (including apartments) ranges between 25% and 50% depending on the seller's status and holding period. However, for a first residential property of an individual resident, significant exemptions exist, and often the profit may be exempt from tax entirely or subject to a significantly lower rate.

Typical Capital Gains Tax Rates (2026)

• First residential property of an individual permanent resident: Up to 0% to 25% depending on holding period and actual gain. Most substantial exemption.
• Second residential property or investment property of an individual: Usually 25%–35% depending on holding period.
• Commercial property or office building: Up to 50% depending on holding period and seller's status.
• Company or temporary resident: Higher rates, usually 30%–50%.

It is important to emphasize that these rates change according to legislation and are updated periodically. Additionally, there are other factors that may affect the calculation, such as tax deductions on index linkage, recalculated interest, and special exemptions for certain categories of sellers (for example, retirees, sellers aged 60 and over, etc.).

How is the capital gain actually calculated?

The capital gain is calculated as the difference between the "sale proceeds" (sale price minus authorized sale expenses) and the "original acquisition cost" (purchase price plus authorized purchase expenses and approved improvements). However, not every improvement or expense is recognized as part of the acquisition cost — only improvements that added permanent value to the property and are properly documented in legal and accounting records will be recognized by tax authorities.

Simple example: If you purchased an apartment for 1,000,000 NIS and made improvements totaling 100,000 NIS (approved), and now sold it for 1,500,000 NIS, the gross gain is 400,000 NIS (1,500,000 minus 1,100,000). Tax at the applicable rate will be imposed on this amount. However, sale expenses (such as attorney fees, registration fees, broker commissions) are recognized as deductions from the amount received, which reduces the actual gain.

Legal Discounts and Tax Saving Strategies for Capital Gains Tax

There are many legal ways to reduce the cost of capital gains tax on the sale of an apartment, and under certain conditions, you may even be entirely exempt from it. Below are the main discounts and strategies that our attorneys provide to clients:

First Residence Discount

If the apartment is your first residence as a permanent resident of Israel, and it was held solely for residential purposes, you are entitled to a substantial discount on capital gains tax. Under certain conditions, the discount can reach up to 100% (i.e., complete tax exemption), provided that the holding period exceeded a certain minimum period and there was no commercial use of the property.

Tax Erosion on Linkage and Interest

When the capital gains calculation includes linkage or interest that arose due to payment delays, part of the amount may be eligible for tax erosion (up to a certain rate). This is an important legal strategy that significantly reduces the taxable capital gain.

Discount for Retirees and Sellers Aged 60 and Over

Individuals aged 60 and over selling a residential apartment are entitled to special tax treatment and additional discounts under certain conditions. This is an important tool for retirement planning and asset utilization after retirement age.

Proper Documentation of Expenses and Approved Improvements

Meticulous record-keeping and organized receipts for every improvement you made to the apartment can significantly increase the recognized purchase cost by tax authorities, thereby reducing the capital gain. Improvements properly documented in legal and accounting records will be recognized and deducted from the capital gain.

Legal Transaction Planning and Coordination with an Accountant

In complex sales transactions (such as selling an apartment as part of a TAMA 38 project or urban renewal), the transaction can be structured to minimize tax impact. Our attorneys work in close collaboration with experienced accountants to ensure optimal tax planning.

Calculation Examples — Real-World Scenarios

Below are several examples of capital gains tax calculations in real scenarios. Please note that these are general examples only, and each case is examined individually according to its specific circumstances.

Scenario 1: First Residence, Long-Term Holding

Facts: You purchased an apartment for 1,200,000 NIS, made improvements totaling 150,000 NIS (approved), held it for 15 years, and sold it for 2,000,000 NIS. Sale costs (attorney, registration) totaled 80,000 NIS.

Calculation: Total acquisition cost = 1,200,000 + 150,000 = 1,350,000 NIS. Net proceeds = 2,000,000 - 80,000 = 1,920,000 NIS. Gross capital gain = 1,920,000 - 1,350,000 = 570,000 NIS. Because this is a first residence and the holding period was long-term, you may be entitled to a substantial discount or even complete tax exemption (under certain conditions). In this case, the tax could be 0 NIS.

Scenario 2: Investment Apartment, Medium-Term Holding

Facts: You purchased an apartment for 800,000 NIS, held it for 7 years, and sold it for 1,300,000 NIS. Sale costs totaled 60,000 NIS.

Calculation: Acquisition cost = 800,000 NIS. Net proceeds = 1,300,000 - 60,000 = 1,240,000 NIS. Gross capital gain = 1,240,000 - 800,000 = 440,000 NIS. Because this is an investment apartment (not a first residence) and the holding period was medium-term, the tax rate will be higher — typically around 30%–35%. Estimated tax = 440,000 × 32% = 140,800 NIS.

Scenario 3: Apartment with Tax Erosion on Linkage and Interest

Facts: You purchased an apartment for 1,000,000 NIS, sold it for 1,600,000 NIS, with sale costs of 70,000 NIS. Upon calculating the capital gain, it appears that 100,000 NIS of the gain consists of linkage and interest that may be eligible for tax erosion.

Calculation: Gross capital gain = (1,600,000 - 70,000) - 1,000,000 = 530,000 NIS. Taxable capital gain = 530,000 - 100,000 (erosion) = 430,000 NIS. If the tax rate is 30%, estimated tax = 430,000 × 30% = 129,000 NIS (compared to the gross calculation without erosion).

Legal and Accounting Guidance Process at Mandelboim Law Firm

At Mandelboim, Gor, Witzman-Gor & Co., we understand that selling an apartment is a complex transaction that is sensitive from both legal and tax perspectives. Therefore, we provide comprehensive legal counsel on capital gains tax at every stage of the process:

Stage 1: Pre-Transaction Consultation

Before signing a purchase agreement, we examine your legal and tax status, identify the exemptions you are entitled to, and plan the transaction in a way that minimizes tax costs. We also guide you to cooperate with an experienced accountant.

Stage 2: Documentation and Record Keeping

We assist in proper documentation of all expenses, receipts, and improvements you made to the apartment. This documentation is critical for proving the acquisition cost to the tax authorities and can save you thousands of shekels.

Stage 3: Preparation of Legal Documents and Purchase Agreement

We draft the purchase agreement with legal precision, while protecting your rights and terms that benefit your tax situation. Every clause in the agreement is carefully chosen to ensure complete legal protection.

Stage 4: Registration and Completion of the Process

We handle all registrations at the Land Registry office and all procedures required to complete the sale in full compliance with the law. We also guide you in filing the correct income tax return (Form 106 or another relevant form).

Important Rules for Legal Planning of Apartment Sale

In addition to understanding the cost of capital gains tax, it is important to comply with several legal rules to ensure that the transaction is carried out legally and safely:

1. Proper Record Keeping from the Time of Purchase

Keep all receipts, invoices, and contracts related to the purchase, improvements, and work performed on the apartment. This documentation is essential to prove the purchase cost to the tax authorities and to reduce the capital gain.

2. Verification of Rights and Land Registry Registration

Ensure that the apartment is registered in your name at the Land Registry (ownership) without any legal delays or claims. Also check if there are mortgages, leases, or third-party rights on the property.

3. Legal Advice in Advance

Obtain experienced legal advice before signing a purchase agreement. An experienced attorney will examine all transaction terms, identify legal risks, and plan the transaction in a way that protects your rights.

4. Coordination with an Accountant

Work in close cooperation with an experienced accountant to ensure optimal tax planning and the filing of correct reports with the tax authorities.

5. Adaptation of the Purchase Agreement

Ensure that the purchase agreement includes all important conditions, such as closing date, final price, payment terms, and allocation of costs. A clear and accurate agreement can prevent disputes and legal proceedings in the future.