Tax Guide for Foreign Property Buyers in Israel
Buying property in Israel as a foreign resident involves significant tax obligations that differ substantially from Israeli residents. Understanding these taxes upfront is critical for budgeting accurately and avoiding costly surprises.
Important Disclaimer
This guide provides general information about Israeli property taxes for educational purposes. Tax laws change frequently, and your specific situation may differ. Always consult a qualified Israeli tax advisor (yo'etz mas) before making financial decisions. Tax brackets mentioned are approximate as of early 2025.
Mas Rechisha (Purchase Tax)
Mas rechisha is a tax paid by the buyer upon purchasing property in Israel. It is by far the largest tax cost for foreign buyers. The rates are progressive (like income tax brackets) and vary dramatically depending on your residency status and whether this is your first Israeli property.
Israeli Residents, First (Sole) Apartment
If you are an Israeli resident and this will be your only property (dira yechida), you benefit from reduced brackets:
| Purchase Price Bracket (NIS) | Tax Rate |
|---|---|
| Up to ~1,978,000 | 0% |
| ~1,978,001 to ~2,347,000 | 3.5% |
| ~2,347,001 to ~6,055,000 | 5% |
| ~6,055,001 to ~20,183,000 | 8% |
| Above ~20,183,000 | 10% |
Example: An Israeli resident buying their first apartment for 2,500,000 NIS would pay approximately 19,000 NIS in mas rechisha (0% on the first ~1,978,000 + 3.5% on the next ~369,000 + 5% on the remaining ~153,000).
Foreign Residents, Investors & Second-Apartment Buyers
If you are a foreign resident, or if you already own property in Israel and are buying an additional apartment, you pay significantly higher rates with no tax-free threshold:
| Purchase Price Bracket (NIS) | Tax Rate |
|---|---|
| Up to ~6,055,000 | 8% |
| Above ~6,055,000 | 10% |
Example: A foreign buyer purchasing a 3,000,000 NIS apartment would pay 240,000 NIS in mas rechisha (8% of 3,000,000). Compare this to the ~19,000 NIS an Israeli resident would pay for the same property as a first apartment. That is a difference of over 220,000 NIS.
Olim Chadashim, Reduced Purchase Tax
New immigrants who purchase their first apartment in Israel within the qualifying period (generally within 7 years of aliyah, with possible extensions) benefit from reduced mas rechisha that is even more favorable than the standard resident brackets. The exempt threshold is higher, and the rates on amounts above the threshold are lower.
This is one of the most financially significant benefits of making aliyah before buying property. The savings can amount to tens of thousands of shekels compared to even regular Israeli residents, and hundreds of thousands compared to foreign buyers.
Read the full Olim Mortgage Benefits guide for details.
Mas Shevach (Capital Gains Tax)
When you sell property in Israel, you may owe capital gains tax (mas shevach) on the profit, the difference between the purchase price and the sale price, minus allowable deductions.
Tax Rate
The standard capital gains tax rate on Israeli real estate is 25% on the real (inflation-adjusted) gain. However, significant exemptions and deductions are available depending on your status:
- Israeli residents selling a sole apartment: Full exemption from capital gains tax (subject to conditions and holding period requirements)
- Foreign residents: Generally subject to the full 25% tax on gains. A linear exemption formula may apply for properties purchased before 2014.
- Investment property owners: Subject to 25% tax on gains regardless of residency status.
Allowable Deductions
You can deduct certain costs from the capital gain to reduce your tax liability:
- Mas rechisha paid when purchasing the property
- Lawyer fees from the original purchase
- Real estate agent commissions (purchase and sale)
- Documented improvement costs (renovations that increased the property's value, keep all receipts)
- Inflation adjustment on the purchase price
Rental Income Tax
If you rent out your Israeli property, the rental income is taxable. Israel offers three methods for taxing rental income, and the best option depends on your situation:
Option 1: Exempt Track (up to threshold)
Israeli residents can receive up to approximately 5,470 NIS per month (2025 figure, adjusted annually) in residential rental income tax-free. Above this threshold, a reduced rate applies. This option is available only to Israeli residents, not foreign residents.
Option 2: Flat 10% Tax
Pay a flat 10% tax on gross rental income with no deductions. Simple and straightforward. Available to both Israeli and foreign residents. No expenses can be offset against income under this option.
Option 3: Regular Income Tax
Report rental income as part of your regular taxable income at your marginal tax rate (up to 50%). However, you can deduct expenses: mortgage interest, depreciation (2% per year on the building value), repairs, property tax, management fees, and insurance. This option makes sense for high-expense properties or if your overall income is low.
Reporting Requirements
Foreign buyers have specific reporting obligations in Israel:
Mas Rechisha Declaration
You must file a mas rechisha declaration with the Israel Tax Authority within 30 days of signing the purchase agreement. Your Israeli lawyer typically handles this. The tax payment itself is due within 60 days of signing.
Capital Gains Reporting
When selling property, you must file a mas shevach declaration within 30 days of the sale. An advance payment (typically 15% of the sale price for foreign sellers) may be withheld by the buyer's lawyer and remitted to the Tax Authority until the final tax is calculated.
Rental Income Reporting
If using the flat 10% method, payment is due within 30 days of the end of each tax year. If using the regular income tax method, you must file an annual tax return in Israel. The exempt track requires no special filing if income is below the threshold.
Home Country Reporting
Depending on your country of residence, you may need to report Israeli property ownership, rental income, and capital gains to your home tax authority. US citizens have FBAR and FATCA obligations. UK residents report overseas income to HMRC. Always consult a cross-border tax professional.
Tax Treaties
Israel has double taxation agreements (DTAs) with over 50 countries, including the United States, United Kingdom, Canada, Australia, France, Germany, and South Africa. These treaties are designed to prevent you from being taxed twice on the same income.
How Tax Treaties Typically Work for Property
- Rental income: Taxed first in Israel (where the property is located). Your home country then gives you a credit for the Israeli tax paid, so you are not taxed twice on the same income.
- Capital gains: Israel has the primary right to tax gains from Israeli property. Your home country typically provides a foreign tax credit. The exact mechanism varies by treaty.
- Purchase tax (mas rechisha): Generally not creditable against home country taxes, as it is a transfer tax rather than an income tax. Check with your home country tax advisor.
Practical Tax Tips for Foreign Buyers
1. Consider Aliyah Timing
If you are seriously considering making aliyah in the next few years, it may make financial sense to make aliyah BEFORE purchasing property. The mas rechisha savings alone (from 8% to the oleh reduced rate) can amount to hundreds of thousands of shekels. This requires genuine immigration, not a tax-avoidance scheme.
2. Keep All Receipts
Every improvement, renovation, and professional fee related to your property should be documented with official receipts (kabbalot). These deductions reduce your capital gains tax when you eventually sell. A small filing effort now can save you significant tax later.
3. Choose Your Rental Tax Method Carefully
The three rental income tax options (exempt, flat 10%, or regular income tax) produce very different results depending on your income level and expenses. Run the numbers on all three before choosing. Your Israeli accountant can model scenarios for you.
4. Engage a Cross-Border Tax Professional
If you are buying Israeli property while being a tax resident of another country, you need a tax advisor who understands BOTH jurisdictions. The interaction between Israeli and home-country taxes is complex, and getting it wrong can be expensive.
5. Budget for Mas Rechisha from the Start
Do not treat mas rechisha as an afterthought. For foreign buyers, it is 8% of the purchase price. On a 3,000,000 NIS property, that is 240,000 NIS that you need IN ADDITION to your down payment. Use our Purchase Cost Calculator to budget accurately.
6. Understand the 18-Month Rule for Upgraders
If you are buying a new apartment and planning to sell your existing one, you may be able to avoid the higher second-apartment tax rates if you sell your existing property within 18 months of the new purchase. Timing matters, consult your lawyer.
Need Help Navigating Israeli Property Taxes?
While I am a mortgage consultant and not a tax advisor, I can connect you with trusted cross-border tax professionals who specialize in Israeli property tax for foreign buyers. And I will make sure your mortgage is structured in a way that is tax-efficient from day one.