Selling real estate for a higher price than you bought it for will often be subject to מס שבח unless you're eligible for various exemptions or leniencies and i'll mention below. The law source for it is found in חוק מיסוי מקרקעין (שבח ורכישה and for now i'll outline below some of what can be found in סעיפים 47-49.
Definition: דירת מגורים מזכה - any unit that was used for residential living for the past 4 years before selling, or that was lived in for 4/5 of the period in which the appreciation under question occured. (also if wasn't used for anything at all, it also is considered a דירת מגורים מזכה).
That having been said let's take the best case scenario (we'll call it CASE 1) where you pay nothing: You're selling a דירת מגורים מזכה AND it fulfills all the conditions for an exemption from the tax such as: 1) it's the only property that you own 2) you're an israeli citizen 3) and some further conditions stipulated in סעיף 49א -- Then you pay no מס שבח at all. This is called a פטור לדירת מגורים מזכה .
Now let's jump to the other extreme (we'll call it CASE 3) -- not only do you not qualify for the exemptions but you're selling a property that is not a דירת מגורים מזכה, i.e. it wasn't used for living in the past 4 years. In that case it breaks up into two scenarios: 1) If you bought after November 2001 or before.
If you bought after November 2001 (referred to in the law as "יום התחילה") then it further breaks up into two time periods, before or after January 2012 (referred to as "מועד השינוי") with the following tax rates:
- the Real Appreciation incurred after January 2012 - 25%
- the Real Appreciation incurred before January 2012 - 20%
However if you bought before November 2001 then it breaks up into 3 time periods as follows:
- the Real Appreciation incurred after January 2012 - 25%
- the Real Appreciation incurred before January 2012 but after November 2001 - 20%
- the Real Appreciation incurred before Novmber 2001 is taxed at the highest rate available in סעיף 121 of פקודת מס הכנסה. (currently that would be 47%)
Example:
A property purchased in 1995 for 1 million and was sold in 2015 for 3 million.
The total שבח is 2 million over a 20 year span, or 100,000 shekel per year.
Tax will be as follows:
- 6 years (1995-2001) -- 47% X 100,000 X 6 years = 282,000
- 11 years (2001-2012) -- 20% X 100,000 X 11 years = 220,000
- 3 years (2012-2015) -- 25% X 100,000 X 3 years = 75,000
Finally we come to the middle ground, CASE 2, selling a דירת מגורים מזכה (i.e. you've used it for living in the past 4 years), BUT you don't qualify for the exemptions e.g. you're not a citizen or you own more than 1 apartment.
In this case the magical date is January 2014:
- All Real Appreciation incurred before this date is entirely exempt.
- All Real Appreciation incurred after this date is taxed at a rate of 25%.
Example:
A property purchased in 2009 for 1 million and was sold in 2019 for 3 million.
The total שבח is 2 million over a 10 year span, or 200,000 shekel per year.
Tax will be as follows:
- 5 years (2009-2014) -- completely exempt.
- 5 years (2014-2019) -- 25% X 200,000 X 5 years = 250,000
