How does the "Israel Tax Deduction" work?

tax deduction in Israel

Take advantage of falling markets to reduce your tax bill.

What if this was the right time to claim your tax deduction in Israel and sell your property?

Year-to-date performance of the world's leading marketplaces is as follows:

  • - The Nasdaq fell by 22.85%.
  • - The Dow Jones fell by 12.85%.
  • - The Cac 40 fell by almost 14%.
  • - The S&P index fell by 17.44%.

Cryptos also follow the same pattern:

  • - Bitcoin lost 47.38%.
  • - Ethereum lost 60%.

We're a long way from the exceptional market performances seen in 2021.

We won't list them all, but you'll understand that markets are not
not really on the rise at the moment, and with inflation on the rise it's not
not about to stop there, unfortunately.

At the same time, the real estate market in Israel continues to reach record levels:

2021 :
10.1% increase in real estate prices in Israel.

2022 :
16% increase over the last 12 months (July 2021 - July 2022).

The various reforms (see below) have done nothing to change this, and property prices in Israel continue to rise.ALSO READ: Purchase tax increase in Israel.

The importance of establishing the tax deduction in Israel

To claim a tax deduction in Israel, and use it in the current year or carry it forward to future years, you need to file a report with the Israeli tax authorities (annual tax return) in which you list all your gains/losses.

In some cases, losses can be deducted from realized income, and this is what we'll explain below.

Possibility of deducting financial losses against real estate capital gains.

So if you sell your property, realizing a capital gain, you will (a priori) have to pay 25% in capital gains tax.

Except that in Israel, losses on financial products (הפסד מניירות ערך) can be deducted against real estate capital gains.

 So this could be a good time to sell your property, book the unrealised capital losses on your financial products (you can always buy the product back later if you think it's going to go up) and reduce the capital gains tax.

Watch out!

Obviously, selling several properties in Israel over a relatively short period of time (2-5 years) can be considered as a "marchand de biens" activity and may expose you to tax and VAT liability in Israel.ALSO READ: Property dealer in Israel ? How to avoid the pitfalls?

The bank won't do it for you

The banks that manage your financial portfolio can't do this for you. So you need to call in a professional, who will come and check all your financial income (in Israel and abroad), and can take the necessary steps to optimize it.

Important information:

  1. Banks don't carry losses from year to year.
  2. The banks do not know your other financial income and are therefore unable to make the deduction.
  3. The banks do not know your other income (property, pension, salary, business activity, etc.) and systematically deduct 25% at source.

In 99% of cases, a refund can be obtained on taxes levied by the Israeli banking system.

We can go back 6 years

If you have had losses on the financial markets in previous years, we can go back 6 years and ask you to carry forward these losses.

You can use them to deduct future capital gains, whether in real estate or the financial markets.

In a nutshell:

Selling a property in 2022 can allow you to take advantage of the phenomenal rise in value and benefit from capital gains.

Rising bank interest rates may depress the market in future years, so now may be a good time to sell.

If, on the other hand, you have losses (recognized or latent) on the financial market, it is essential to make the right moves to optimize your situation and reduce your tax bill as much as possible.

Our firm specializes in operations of this type and will be delighted to help you optimize your tax situation in Israel.

The information provided in this article should not be considered as financial advice. It cannot replace a private consultation with a chartered accountant who will tailor his advice to your personal tax situation.

Your questions - our advice

Which financial products are eligible for this tax break?

Conventional products (stocks, bonds, indices) can be sold at a loss to recognize the financial loss.

Interest and dividends are also sometimes tax losses, and can be used in certain cases.

Is there a limit on the deductible amount?

No, there is no limit. You have to submit a report at the end of the year, declare your losses and claim the tax deduction in Israel to recover the tax on the capital gain.

How far back can we go?

If you have never filed a tax return in Israel, you can go back 6 years. If you have already filed tax returns, there are ways to assert your rights. Contact us for more information.

Does the portfolio have to be managed by an Israeli bank?

No, you can use financial losses anywhere in the world.

If you are an Ole Hadash, within 10 years of Aliyah, contact us to benefit from the various tax optimization solutions available.

Is it possible to profit from the loss while spreading the gain?

Yes, you can use the loss on the first part of the gain, and spread the rest of the taxable gain to maximize your rights.

Can I decide not to use the tax deduction this year and carry it forward for future years?

Yes, in some cases this is possible.

This is particularly interesting in the case of dividends, interest or capital gains on real estate.



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Phone : 02 631 9000
Fax: 02 631 9005
Email : office@cpa-dray.com

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