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Introduction
What are "single home tax reliefs"? The Israeli government helps its citizens so that they can own their own homes. Helping people own their own homes, strengthens the economy as a whole. Also, it allows people to accumulate capital during their younger years which can be realized later in life when they downsize to a smaller or less expensive home.
So, how does the government help its citizens become homeowners? It's simple, they provide tax reductions or exemptions to citizens when they purchase or sell their home (provided they don't own other properties).
However, sometimes people need up-size, down-size or move to a different area. And to do so, they'll need to buy a new home. If it takes time to sell their first home, they can be left with an overlap during which time they'll own two properties. But, there's no need to worry because they'll be eligible to all the same single home tax reliefs, provided the overlap is within the limited timeframe.
How long do I have to sell my first home after buying my new home?
Until March 2016 you would be considered a "single property owner" if you sold within 24-months of purchasing your 2nd property. If you managed to sell within this timeframe, you would receive the single home tax reliefs as follows:
- Tax exemption on the gains (מס שבח)
- Purchase tax reduction on the second property.
In March 2016, a "temporary bill" was passed that shortened the time limit from 24-months to 18-months. However, the 2016 temporary bill expired (July 6, 2021). So, the period during which 2 apartments can be owned has been automatically extended to 24 months.
What is the reform?
As part of the tax bill for the year 2021, the Israeli government is proposing to reduce the time frame from 24-months to just 12-months. So, when you buy a new home, there's no time to waste before finding a buyer for your last property, otherwise you'll loose the generous single home tax reliefs.
How to reduce tax on Israeli rental income
What is the purpose of the reform?
The purpose of this reform is to curb the rise in property prices in Israel. According to the proposal, the 24-months timeframe is too generous and leads to a large stock of "waiting apartments. People hold onto their previous properties for too long, waiting for the prices to go up. This reduces the supply of homes available on the market and causes in increase in apartment prices.
A reform also on Israeli rental income reporting
Individuals who receive rental income below the exempt monthly limit, currently are not required to report this income. This helps landlords with low incomes avoid the unnecessary headache of filing a tax return. However, that's about to change.Tax reforms - rental income reporting in Israel!
Our opinion on the new tax reform in Israel
- This reform targets a particular sector of the Israeli population. Specifically, individuals who are comfortable enough to have the option of buying a second home before selling their first.
- However, there is a lack of fairness within this law, as not all two properties are the same. For example, an owner of 2 apartments in Hadera or Beer Sheva should not be treated in the same way as an owner of 2 apartments in Jerusalem or Tel Aviv.
- Encouraging people to sell their apartment in Israel faster can be beneficial if it helps keep property process down. But some owners may be unfairly forced to sell too fast to meet the 12 months deadline.
- The returns on investment and "high" potential gains may encourage owners not to sell these apartments within the allotted time despite the loss of the tax benefits.
- As always, it would be good for a transition period to be put in place for the government, to give the owners of several apartments time to optimize their choice and make the right decision.
Israeli taxation offers several advantages to people wishing to make their Aliya. Before taking the step, it is important to prepare properly and to avoid any tax complications in the future.
