Purchasing or selling real estate in Israel is a major step. Between choosing the location, defining the property’s characteristics, and managing the budget, the challenges are numerous. However, beyond the transaction itself, taxation remains one of the most decisive pillars for the success of your project.
Understanding your rights regarding real estate taxation is not merely an administrative necessity; it is an essential strategy to limit costs and protect your investment. With the support of an experienced attorney, these complexities can be transformed into genuine optimization opportunities.
Below are several key points and legal “tips” that can make a significant difference in your transactions:
1. The “One-Third Ownership Rule” – A Lever for Purchase Tax Reduction
Contrary to common belief, owning a share of a property does not necessarily deprive you of tax benefits.
The principle:
Under Israeli real estate tax law, if you own less than 33.33% (one third) of a first property, you may still qualify for the reduced rate of purchase tax (Mas Rechisha) when acquiring your next property. This new asset will be considered, for tax purposes, as your “sole residence.”
For example, you must co-own the first property with at least four other co-owners holding equal shares (25% each).
The economic equivalence nuance:
Case law imposes limits on this rule. If you hold several shares in the same building whose cumulative total exceeds one third, the tax authorities may treat them as a single full property. Conversely, holdings spread across different buildings (each below one third) may preserve your entitlement to the reduced rate.
Inheritance exception – a significant advantage:
When ownership results from inheritance, the tolerance threshold is increased: you may hold up to 50% of the inherited property without losing your status as a “sole residence” purchaser for a future personal acquisition.
Important note:
The tax authorities assess the family unit (spouses and children under 18) as a single entity when calculating property ownership.
2. Inheritance: Major Tax Advantages to Preserve
In line with inheritance-related exemption mechanisms, the transfer of real estate in Israel benefits from a protective tax framework—provided its subtleties are well understood.
Zero entry tax:
Receiving a property by inheritance in Israel is not subject to purchase tax for heirs.
The continuity principle (Capital Gains Tax):
Upon resale, the heir may benefit from a full exemption from capital gains tax (Mas Shevach). The law considers that the heir “steps into the shoes” of the deceased: if the deceased would have been entitled to an exemption during their lifetime, that right is transferred to the heir, regardless of the heir’s own real estate situation.
Foreign resident heirs – vigilance following the 2021 reform:
Special attention is required for heirs residing in France or abroad. In 2021, the Israeli tax authorities introduced a reform outside the classic provisions of the law concerning the capital gains tax exemption for inherited property sales.
The exemption is now conditional upon proof that the heir does not own any other property in their country of residence. Obtaining an explicit certificate from foreign tax authorities may now be a necessary procedural step, which our firm supervises to ensure a smooth transaction.
Legal expertise – your strongest asset
Real estate and tax opportunities in Israel are real, but their application depends on legal nuances and administrative reforms that are often invisible to non-specialists.
Your real estate project in Israel deserves excellence
Investing in Israeli real estate is far more than a simple asset acquisition: it is a decision that shapes your future and that of your family, requiring in-depth mastery of Franco-Israeli legal and tax mechanisms.
Between substantial tax benefits, administrative pitfalls, and constant legislative changes, every real estate case has its own specificities and requires a tailor-made analysis.
Whether you are purchasing your primary residence, developing a rental investment portfolio, or securing an intergenerational transfer, a single misjudgment can cost you tens of thousands of shekels in avoidable taxation.
A question? Need assistance? We invite you to complete the dedicated contact form.
NB : This article is given as an indication, consequently each file/case will have to be the subject of a detailed study, in this direction the information contained in this article could not constitute a legal consultation.
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