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Strict statutory compliance: In 2025, Israeli real estate taxation authorities and courts strictly enforced statutory conditions. Tax reliefs, exemptions, and preferential rates were granted only when all legal requirements were met on time and fully substantiated.
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Narrower eligibility for residential apartment benefits: Purchase tax and capital gains exemptions depended on precise factual and legal criteria, including ownership status on the relevant date, completion and habitability of the apartment, and the testator’s ownership of a single apartment at the time of death.
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Transaction classification drives tax outcomes: Courts closely examined the legal characterization of rights and transactions—leases, authorizations, gifts, expropriation compensation, and urban renewal arrangements—often determining whether and when a taxable real estate transaction occurred.
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Growing overlap with income tax and upcoming reforms: Several rulings reclassified real estate gains and rental income as business or commercial income, while pending legislation signals potential expansion of the tax base, surtax exposure, and structural changes affecting real estate taxation in 2026.
2025 Year-End Review: Israeli Real Estate Taxation
Summary
In 2025, Israeli real estate taxation was characterized by strict adherence to statutory requirements: reliefs, exemptions, and lower tax brackets were granted only when the conditions prescribed by law were met, within the defined deadlines, and with full proof of the relevant facts. The focus was on eligibility for tax benefits for residential apartments, differentiating between private and business assets, and the classification of rights and transactions (leases, land use authorizations, property transfers for no consideration, etc.) for tax purposes.
Taxation of Residential Apartments: Eligibility for Benefits and Exemptions
- Purchase through a purchasing group: The Real Estate Taxation Law allows purchasers of a right to an apartment in a purchasing group whose construction was delayed to purchase a new apartment according to the tax brackets applicable to an owner of only one apartment, provided they did not own another apartment at the time they acquired the right in the purchasing group. In Appeals Committee 28123-04-21 Malchior v. Jerusalem Land Taxation Administration, the purchasers did own another apartment when they purchased the right in the purchasing group. Thus, the court held that they were not entitled to the purchase tax benefit applicable to an owner of only one apartment, and rejected their argument that the apartment purchased through the purchasing group should be considered an “alternative apartment” to the previous apartment that was subsequently sold.
- Capital gains tax exemption for heirs: Heirs are entitled to sell an apartment they inherited and receive a capital gains tax exemption only when it was the testator’s sole apartment. In Appeals Committee 20627-03-24 Cohen v. Nazareth Real Estate Tax Administration, the testator purchased an additional apartment prior to his death and undertook to sell the old apartment by the statutory deadline, but died before selling it. The heirs managed to sell the old apartment by the statutory deadline to receive the exemption, but the court held that this did not entitle them to it, because the testator owned two apartments on the date of his death.
- Classification of a property as a residential apartment: A property will be deemed a residential apartment only if its construction has actually been completed, its essential infrastructure (electricity, water, kitchen, etc.) has been installed, and it has received a Form 4 (occupancy permit). Abandoned or destroyed buildings, or those designated by planning regulations for commercial use, will not qualify for the capital gains tax benefits reserved for residential apartments, since they do not meet the basic condition of “intended for housing by their nature.” In Appeals Committee 10100-07-22 Orion v. Tel Aviv Real Estate Taxation Administration, the dispute concerned whether the apartment being sold met the definition of “residential apartment” for capital gains tax purposes, whether “its construction was completed,” and whether it was “intended for housing by its nature.” The court ruled that construction is completed when the apartment is fit to be used as a person’s residence under reasonable and acceptable conditions. See also Appeals Committee 23653-07-22 Asulin v. Jerusalem Real Estate Taxation Administration.
Real Estate Transactions: Lease Agreements, Gifts, and the Presumption of Shared Property
- A lease agreement without a renewal option: A lease agreement for a period of 24 years and 11 months stipulated that if the lease period is extended in the future, it will be under the conditions customary in that sector and subject to a valid manufacturing license. The court ruled that this stipulation did not amount to a buyer’s option to extend the lease constituting a real estate transaction (Appeals Committee 44227-02-23 Ruach Odem Farm – Agricultural Cooperative Association Ltd. v. Tiberias Real Estate Capital Gains Tax Administration; Appeals Committee 44200-02-23 in the Alonei Habashan Farm case).
- Expropriation compensation for Israel Land Authority authorization: Expropriation compensation for the Israel Land Authority’s renewed authorization of a right to use land is subject to capital gains tax, even if no valid contract exists at the time of the expropriation, provided that there is a reasonable expectation of the contract’s renewal. Namely, the right to the land does not lapse during the interim period between the renewal of one contract and the next (Appeals Committee 54892-10-23 Yesha v. Beer Sheva Land Taxation Administration).
- Transfer of shares to a relative as a gift: A capital gains tax exemption is possible for a transfer of shares without consideration between siblings, even if the shares were initially allotted at the time of the company’s founding, provided that the shares originated from land the parents purchased and transferred to the company pursuant to Section 104B of the Israeli Income Tax Ordinance (Appeals Committee 53364-04-22 Arbetman v. Haifa Real Estate Taxation Administration).
- New immigrants: The relevant eligibility period for a new immigrant to receive purchase tax benefits for an as-yet constructed apartment commences on the date of completion of the apartment’s construction (Appeals Committee 20627-03-24 Eislar v. Jerusalem Land Taxation Administration).
- Family law – the specific sharing rule between spouses: The Supreme Court ruled that by virtue of the specific sharing rule, rights to residential apartments received via a combination transaction executed by one of the divorced spouses in whose name the land was registered and who received the land as a gift before marriage, may be attributed to the other divorced spouse (Family Appeal Application 5620-24 Unidentified v. Unidentified). Although this is a family court ruling, it may have positive and negative implications in the tax sphere as well. On the positive side, recognizing an asset as joint property may allow the spouses to split the tax assessments, thereby easing the tax burden in instances of capital gain splitting and even reducing exposure to surtax. On the negative side, if an external asset is considered joint property, it may affect eligibility for single residential apartment tax benefits, both for capital gains tax and purchase tax purposes.
Urban Renewal: National Outline Plan 38/1 (Earthquake Retrofit and Renovate)
The Real Estate Taxation Administration determined that purchases of rights in an NOP 38/1 project prior to the deferred sale date are subject to purchase tax, since a building permit had already been granted at that stage. The court ruled that the appellant purchased the rights before the deferred sale date, which is the earlier of the fulfillment of the suspending conditions or the start of construction services. “Construction services” refers to the actual start of construction and not the building permit’s issue date. The court also held that the condition regarding obtaining financing is likewise a suspending condition in the agreement, since its fulfillment depends on the financing entity and the earliest possible fulfillment of this condition is the signing date of the financing agreement (Appeals Committee 1915-04-22 Avney Derech Y.Y. Ltd. v. Jerusalem Land Taxation Administration).
When Real Estate Tax and Income Tax Converge
Several court rulings in 2025 deliberated the classification of capital gain from the sale of a residential apartment as profit income, either on the basis that the transaction was classified as a random transaction of a commercial nature, or as business income. See Tax Appeal 55781-05-22 Bental v. Haifa Tax Assessor (sale of an apartment as a random transaction of a commercial nature); Tax Appeal 57150-03-22 Twito v. Haifa Tax Assessor (attribution of income from the sale of an apartment registered under the son’s name to his father and classifying it as income from a random transaction of a commercial nature); and Tax Appeal 21387-08-20 Pinchas v. Acre Tax Assessor and the Acre VAT Administration (classifying the sale of a large number of apartments, some of which were given to family members, as a real estate sales business).
In a similar context concerning the classification of rent income, it is important to be aware of the Weiss case (Tax Appeal 7265-0223). The income tax assessor claimed the rental income from 17 apartments was passive income rather than business income (!), since this argument served the Israel Tax Authority’s best interests in that case. It is doubtful if the income tax assessor would have accepted this argument under different circumstances.
Amendments to Real Estate Tax Legislation and Looking Ahead
Deadline for selling an old apartment upon purchasing a new one:
As of June 1, 2025, purchasers of a replacement residential apartment have a 24-month period to sell the existing apartment to qualify for single residential apartment tax benefits (purchase tax and capital gains tax), following the expiration of the temporary provision that reduced the period to 18 months.
Bills pending approval:
- The return of property tax – Highlights of the bill include raising the property tax rate from zero to 1.5% and expanding the tax base so it applies to all vacant land, including agricultural land valued at more than ILS 100,000 per dunam. The draft bill imposes reporting and self-assessment obligations on landowners.
- Surtax – The bill proposes, when determining taxable income for imposing a surtax, to include a taxable capital gain arising from the sale of a residential apartment of any value. (Currently, a taxable gain from the sale of a residential apartment is limited to an apartment whose value exceeds ILS 5,382,285.)
- Widening of income tax brackets – Another bill proposes to widen the income tax brackets so that a broader range of income falls within the 20% tax bracket and a narrower range of income falls within the 31% and 47% tax brackets.
- New immigrants – This bill proposes granting a temporary tax benefit to new immigrants and returning residents who become Israeli tax residents in 2026: an exemption from tax on earned income in Israel from the date of arrival and for a period of five years, subject to benefit ceilings that decrease over time. In 2026, the exemption will be granted proportionally to the period of residency.
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Adv. Maya Carmi Lubartovski is a partner and head of the firm’s real estate taxation practice.
Barnea Jaffa Lande’s real estate taxation practice provides comprehensive legal advice on tax planning and the wide range of tax issues that arise in real estate transactions. These include urban renewal and combination projects, sales of residential apartments with building rights, purchasing group and local authority transactions, expropriations, leasehold agreements, the dissolution of real estate associations, and more.