Betterment Tax Calculator

How is betterment tax calculated?

Betterment is the sale value less the balance of acquisition value: the acquisition value, plus expenses allowable as deductions and less depreciation (sections 6 and 47 of the Real Estate Taxation Law). The part of the betterment that results from the rise in the index is the "inflationary amount", and it is exempt from tax, except for the part accrued up to the end of 1993, which is taxed at 10%. What remains is the real betterment, and the tax applies to it.

What is the tax rate?

An individual who acquired the right from 2012 onwards pays 25% on the real betterment. If the acquisition was earlier, the real betterment is apportioned according to the number of days:

• The part up to 6 November 2001 is taxed at 47%.
• The part from 7 November 2001 to 31 December 2011 is taxed at 20%.
• The balance is taxed at 25% (section 48A(b1)).

A company pays 23%.

What is the beneficial linear calculation?

A person selling a qualifying residential apartment acquired before 1 January 2014 that is not exempt pays tax only on the proportionate part of the real betterment attributable to the period from 1 January 2014. The part up to that date is exempt (section 48A(b2)). If the consideration was affected by rights to additional construction, the benefit applies only up to the value of the apartment without the rights plus the additional exemption (section 48A(b3)).

When is the sale of an apartment exempt from betterment tax?

There are several exemptions. For each of them, the calculator applies the exemption only if you have ticked all the statutory conditions:

• Sole apartment: the apartment has been held for at least 18 months since it became a residential apartment, and no other apartment was sold under the same exemption in the 18 months before the sale (section 49B(2)).
• Inherited apartment, subject to the conditions of section 49B(5).
• One-time exemption for a person who owns two apartments, subject to the conditions of section 49E and the ceilings in it.

Where the sale value exceeds NIS 5,008,000, the exemption applies only up to that amount (section 49A(a1)). Waiting periods apply to an apartment received as a gift (section 49F).

What is spreading of betterment tax?

An individual Israeli resident may request that the real betterment be treated as if it accrued in equal parts over up to four tax years ending in the year of sale, and not over more than the period of ownership (section 48A(e)). The part for each earlier year is added to the income of that year, and is taxed according to the tax brackets and after deducting the balance of credit points. Spreading is mainly worthwhile for those whose income in the earlier years was low, and especially for those aged 60 or over.

Sale by several owners

When several owners sell together, the tax is calculated separately for each of them. The calculation follows each owner's share, their own acquisition date and acquisition value, and the exemptions to which they are entitled. For example, one spouse may be entitled to the sole apartment exemption, while another co-owner is a company or a foreign resident. The calculator shows the tax for each seller and the total.

Offset of losses and expenses after the sale

A capital loss, including a loss from an earlier sale of a right in land, is offset first against the real betterment, and each shekel of the balance against three and a half shekels of taxable inflationary amount (section 92 of the Income Tax Ordinance). A business loss in the year of sale is offset against total income, including betterment (section 28 of the Ordinance). A deductible expense paid after the sale date is included at its "value" as at the sale date (section 47 of the Law).

Real estate association, foreign resident, early acquisition and expropriation

• Real estate association: on the sale of shares in a real estate association, an individual who is a material shareholder is taxed on the real betterment at a rate of up to 30% (section 48A(b)(1a)).
• Foreign resident: a person who lawfully acquired the right in foreign currency while a foreign resident may request that the betterment be calculated according to the exchange rate instead of the index (section 47). The calculator uses the Bank of Israel representative exchange rates.
• Acquisition up to 31 March 1961: the tax is limited to a percentage of the betterment according to the year of acquisition (section 48A(d)), and before 1951 the index is the index set by the Minister of Finance.
• Expropriation: a credit against the tax is granted under section 48C.
• Low income: the Director may permit tax at the seller's income tax rates, where these are lower than the statutory rate (section 48A(b)(2)).

When should betterment tax be checked?

Before setting a price, not after signing. The choice between a full exemption and paying tax under the beneficial linear calculation also affects future sales. A full explanation is in the article Betterment Tax on the Sale of an Apartment and on the Selling an Apartment page.

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