Parallel Sale and Purchase Guide — How to Save on Capital Gains Tax

Why is tax planning important in a parallel sale and purchase transaction?

A parallel sale and purchase transaction is one of the most common ways to move between apartments in Israel. However, many buyers and sellers are unaware that proper legal planning and taxation can save them tens of thousands of shekels. Capital gains tax, purchase tax, commissions and mortgage interest — all of these can accumulate quickly and turn a simple transaction into a heavy expense.

That is precisely why at Mandelboim, Gor, Witzman-Gor and Partners law firm, we specialize in tax planning for home relocation. For over 18 years, we have guided real estate buyers and sellers through the complex process of parallel transactions, helping them understand their rights, their obligations and legal ways to save on taxes.

This guide offers a practical roadmap of answers to questions raised by buyers and sellers: What is a primary residence exemption? How much capital gains tax do I owe? Are there legal ways to save? What are the legal steps in a parallel transaction?

What is a parallel sale and purchase transaction?

A parallel transaction (or "simultaneous transaction") is a transaction in which a person sells one apartment and buys another at almost the same time. This is the most common way to move between homes in Israel, because most buyers need the money from the sale to finance the new purchase.

From a legal perspective, a parallel transaction involves two separate purchase agreements — one for the sale and one for the purchase — but they are executed in close coordination to ensure that the buyer receives the new apartment only after the seller receives the proceeds from the sale. This requires coordination between two real estate attorneys, two real estate brokers (if present), the financing banks and the Land Registry office.

The field of parallel transactions is one of the most complex areas in real estate law, because even a small error — in timing, in fund transfers, in documentation or in agreements — can lead to delays, loss of funds or even cancellation of the transaction.

Capital Gains Tax on Home Relocation — What is it and how much do you owe?

Capital gains tax is a tax levied on the difference between the purchase price of an asset and its sale price. In simple terms: if you bought an apartment for 800,000 shekels and sold it for 1.2 million shekels, the difference of 400,000 shekels is "appreciation", and it is subject to capital gains tax.

The rate of capital gains tax in Israel varies depending on the type of property, the length of ownership and the tax status of the seller. Generally, for a residential apartment sold after more than 2 years of ownership, the rate ranges between 20% to 35% of the appreciation (depending on the seller's income and tax bracket). However, there are significant reliefs and exemptions that can substantially reduce the tax liability.

It is important to understand that capital gains tax is calculated on the basis of "real appreciation" — that is, the tax authorities calculate the value of the property at the time of purchase and at the time of sale, and only the difference that exceeds the inflation rate is considered taxable appreciation. This means that if you bought an apartment for 800,000 shekels in 2015 and sold it for 1.2 million in 2024, the calculation will not be straightforward: you need to calculate the initial value by "index" (Consumer Price Index), and only the appreciation that exceeds the rate of inflation will be subject to tax.

Primary Residence Exemption — An important right that some of you are unaware of

One of the most important exemptions under capital gains tax law is the primary residence exemption. Under certain conditions, homeowners who sell their first home (or primary residence) in order to purchase another home as their primary residence — may be exempt from a significant portion or even all of the capital gains tax.

This exemption exists to encourage movement in the real estate market and reduce the burden on families relocating homes. However, the conditions for the exemption are strict and very specific:

• First home only: The exemption applies only if the apartment being sold is your first apartment or primary residence. If you own investment apartments or other properties, this may affect your eligibility.
• Holding period: Generally, you must own the apartment for at least one or two years for the exemption to apply (conditions vary according to current law).
• Purchase of a new home: The exemption applies only if you sell the old apartment in order to finance the purchase of a new apartment as your primary residence.
• Timing: Generally, you must purchase the new apartment within a certain period (usually up to one year) from the sale of the old apartment.

If you are entitled to a primary residence exemption, it could be worth tens of thousands of shekels. This is why it is very important to consult with a real estate attorney at an early stage of planning, to ensure that you receive all of your rights.

Comparison Table — Typical Capital Gains Tax and Relocation Exemption Scenarios

To understand how capital gains tax actually works, let's examine some typical examples:

Important Note: This table is a general estimate only. Actual calculations depend on your income, the consumer price index, the type of property, and additional factors. Each case is examined individually, and professional legal consultation is required to obtain an accurate calculation.

Additional Legal Ways to Save on Taxes in a Parallel Transaction

Beyond the relocation exemption, there are additional legal ways to reduce tax costs in a transaction:

1. Purchase Tax Planning

Purchase tax (or "registration fees") is a tax levied on the purchase of property, with rates varying according to the property value. Generally, for a residential apartment, the rate is approximately 3–8% of the purchase value (depending on the price range). However, discounts and exceptions exist — for example, first-time buyers or low-income families may be entitled to substantial discounts. During the planning phase, we check whether you are eligible for a discount and plan the transaction accordingly.

2. Strategic Use of Loans or Mortgages

Mortgage interest is not deductible from expenses; however, interest on a loan for property improvements (such as renovations) may be deductible under certain conditions. Additionally, proper timing of mortgage obligations can affect your tax rate in coming years.

3. Proper Documentation of Improvements and Renovations

If you have invested money in improving the apartment (such as renovations, roof renewal, installation of a new heating system), proper documentation of these expenses can increase your cost basis and thereby reduce the taxable capital gain. This requires keeping original invoices and receipts.

4. Review of Tax Status and Securities

If you have investments in securities or other businesses, your overall tax status may affect your tax rate on the transaction. In some cases, a real estate transaction may impact your tax status in coming years.

Why Choose Mendelboim, Gur, Witzman-Gur & Co. for Your Real Estate Transaction?

In a transaction worth hundreds of thousands of shekels, you want to be in safe hands. Mendelboim, Gur, Witzman-Gur & Co. specializes in real estate and property law since 2008, with over 18 years of experience guiding complex parallel transactions.

Our approach is straightforward: we believe a client should understand exactly what is happening in their transaction. Therefore, we ensure you know what each step entails, what the risks are, and what legal ways you can protect yourself. We don't hide behind complex legal terminology — we explain in plain language.

Additionally, we work in close cooperation with banks, real estate brokers, and attorneys for the other parties to the transaction, to ensure smooth timing without delays. And of course, we assist in tax planning — checking eligibility for property exchange exemptions, calculating capital gains tax, and properly documenting improvements.

Our office is located in Ramat Gan and also in Petah Tikva, so you can meet with us conveniently. Your first consultation meeting is free of charge — we believe you should get to know our firm and our approach before you decide.