Understanding Mas Shevach

​Mas Shevach , known as Capital Gains Tax in Israel, is levied on the profit realized from the sale of real estate properties. This tax applies to the difference between the property’s acquisition price and its selling price, adjusted for factors like inflation and allowable deductions.​

Calculation of Mas Shevach

The taxable gain is determined by subtracting the original purchase price from the selling price, with adjustments for inflation and permissible deductions such as legal fees, agent commissions, purchase tax paid during acquisition, and costs of capital improvements made to the property.

Tax Rates and Exemptions

As of January 1, 2014, significant changes were implemented in Israel’s capital gains tax regulations:​

• Israeli Residents: Eligible for exemptions under specific conditions, including owning only one residential property and having owned it for at least 18 months. ​
• Non-Residents: Generally not eligible for exemptions and are subject to the full capital gains tax on the profit from property sales.

Linear Tax Rate

To mitigate the impact of these changes, a Linear Tax Rate was introduced, allowing for a proportional tax calculation based on the period the property was held before and after January 1, 2014. This means gains accrued before this date may be taxed at a different rate than those accrued afterward. ​

Recent Developments

In January 2024, the Israeli Ministry of Finance proposed a gradual cancellation of the Linear Tax Rate benefit starting in 2026, aiming for complete abolition by January 2030. This change is intended to standardize the tax burden on property sellers, regardless of when properties were purchased.

Conclusion

Understanding Mas Shevach is crucial for anyone involved in real estate transactions in Israel. Given the complexities and recent changes in the tax regulations, consulting with a qualified real estate attorney or tax advisor is highly recommended to navigate potential liabilities and optimize financial outcomes.