Capital Gains Tax on Property in Israel (Mas Shevach) 2026: Calculation, Exemptions and Smart Planning

Capital gains tax on property in Israel (mas shevach) is the tax paid by anyone who sells a real estate right on the real gain accumulated from the day of purchase to the day of sale. When selling an apartment in north Tel Aviv or the Sharon, where the gap between purchase price and sale price is often measured in millions of shekels, the difference between a well planned sale and one that was not checked in advance can reach hundreds of thousands of shekels. In this guide we have gathered what you need to understand before you sign: how the gain is calculated, when an exemption applies, what happens above the exemption ceiling, how the preferred linear calculation works, which deadlines apply and which mistakes keep coming up. The figures are accurate as of October 2026, and every specific case should be reviewed by a lawyer or a tax advisor.

What is capital gains tax on property in Israel and who pays it

Mas shevach is imposed under the Real Estate Taxation Law (Appreciation and Acquisition), 5723 1963, and it falls on the seller alone. The buyer pays purchase tax (mas rechisha), which is an entirely separate tax. The “shevach”, or appreciation, is the difference between the sale value and the remaining acquisition value, meaning the purchase price plus recognized expenses, all of them adjusted to the consumer price index. In practical terms, not every price increase counts as profit. The portion that stems from inflation is neutralized, and only the real gain is taxable.

The basic tax rate for an individual on real gain accrued from January 1, 2012 is 25%. Different rates apply to earlier periods, so for an apartment bought many years ago the calculation is split across those periods. In addition, anyone whose taxable income in the year of sale, including the gain, exceeds ₪721,560 may be liable for surtax (mas yesef): 3% on all income above the threshold plus another 2% on capital income above it. This threshold has been frozen for 2025 to 2027. For the sale of a residential apartment the law contains special rules that may take some transactions out of the surtax, which is why this is a check your tax advisor should run in advance rather than after signing.

Calculating mas shevach: the three components of the formula

The calculation of capital gains tax rests on three components. Each one is worth understanding, because each leaves room for error and also room for planning.

Acquisition value

This is the price actually paid at the time of purchase, as reported to the Israel Tax Authority. For an inherited apartment, the acquisition value and acquisition date are usually those of the deceased. For an apartment received as a gift, the recipient generally steps into the shoes of the giver. This is why the paperwork matters: the original purchase contract and the purchase tax assessment are the foundation of the entire calculation.

Index linkage

The acquisition value is adjusted to the consumer price index from the purchase date to the sale date. Each recognized expense is adjusted separately from the date on which it was paid. A renovation carried out ten years ago therefore receives a longer adjustment than one carried out last year. The inflationary amount accrued from 1994 onward is exempt from tax, so indexation is not a technicality but a real part of the savings.

Recognized expenses

These are expenses you may deduct from the sale value, provided they are documented:

• Purchase tax paid when buying.
• Legal fees on the purchase and on the sale.
• Brokerage fees on the purchase and on the sale.
• Appraisals required for the transaction or the mortgage.
• Renovations and capital improvements, such as adding a room, replacing building systems, a new kitchen or a permitted balcony enclosure, backed by invoices.
• Betterment levy (heitel hashbacha) paid to the local planning and building committee.
• The real portion of mortgage interest, subject to conditions and to documentation from the bank.

What is not recognized: routine maintenance, ordinary painting, furniture and movable items, and expenses already deducted for income tax purposes. With a rented apartment, pay attention to depreciation: under some of the rental income tax tracks it is deemed to have been deducted, which lowers the remaining acquisition value and increases the gain.

Exemption from capital gains tax on property in Israel for a single apartment: the full conditions

The most common exemption is the single apartment exemption under Section 49B(2) of the law. It is a full exemption, but it depends on several cumulative conditions, and if one of them is not met the entire exemption may be lost.

1. A qualifying residential apartment. The apartment was used mainly for residence during the four years preceding the sale, or during 80% of the period for which the gain is calculated, whichever is shorter. An apartment whose construction has not been completed, or one held as business inventory, is not a qualifying apartment.
2. The only apartment in Israel. The seller, together with a spouse and their minor children, is treated as a single seller. An apartment owned by the spouse counts. An apartment abroad does not count for this condition.
3. 18 months of ownership. The seller has owned the apartment for at least 18 months from the day it became a residential apartment.
4. No similar exemption used in the 18 months before the sale. Anyone who sold another apartment under the single apartment exemption during that period cannot use it again.

Some apartments are not considered an “additional apartment” even if they are registered in your name: a share of up to one third in another apartment, an inherited apartment under certain conditions, and an apartment let under protected tenancy before 1997. And of particular importance to those upgrading their home: a replacement apartment bought before the old one is sold will not affect the exemption, provided the old apartment is sold within 24 months of buying the replacement, for a replacement bought on or after 1 June 2025, or within 18 months for a replacement bought between 1 June 2023 and 31 May 2025. For a new apartment bought from a developer, the period usually runs from the date you receive possession rather than the signing date. The same time windows also apply to the purchase tax relief on the new apartment, but that is a separate relief with its own conditions, which we cover in detail in our guide to purchase tax in 2026. If you are at exactly this stage, you will find more in our guide for homeowners upgrading: sell first or buy first.

Two more exemptions worth knowing: an apartment inherited from someone who owned only one apartment can be sold tax free under Section 49B(5), under the conditions set out in the law, as we explained in our guide to selling an inherited apartment. An apartment received as a gift is subject to a cooling off period: four years from the day the recipient became its owner, or three years if the recipient has lived in it permanently.

The 2026 exemption ceiling: what happens with expensive apartments

The single apartment exemption is capped by a value ceiling. Since January 16, 2024 the ceiling has been ₪5,008,000. Because indexation updates in the tax laws have been frozen, this amount remains in force in 2026 and is frozen until January 15, 2028. In north Tel Aviv this is not a theoretical figure: five room apartments in Ramat Aviv Gimel, garden apartments in Bavli and houses in Tzahala and Afeka regularly sell above the ceiling.

It is important to understand the mechanism: the exemption does not disappear once you cross the ceiling. The amount above the ceiling is treated as consideration for an “other right”, and only the proportional part of the total gain that corresponds to the share of the price above the ceiling is taxed. An apartment sold for ₪5.6 million is not taxed on the entire gain, only on about 10.6% of it, as the example below shows. This is also where a professional property valuation comes in: when the price is close to the ceiling, the difference between an accurate asking price and an inflated one can affect both the proceeds and the tax.

Preferred linear calculation for apartments bought before 2014

The reform in the taxation of residential apartments (Amendment 76 to the law) took effect on January 1, 2014. It narrowed the exemptions for owners of several apartments and, in their place, introduced the preferred linear calculation (linear mutav) under Section 48A(b2). The principle: on the sale of a qualifying residential apartment by an individual, bought before January 1, 2014, the real gain is divided linearly according to the number of days before and after the transition date. The portion attributed to the period up to December 31, 2013 is exempt from tax, and the portion attributed to the period from January 1, 2014 until the sale is taxed at a rate of up to 25%.

This calculation is especially relevant for anyone holding a second apartment, an investment apartment or a rented apartment that does not qualify for the single apartment exemption. The earlier the apartment was bought, the larger the exempt portion, but it keeps shrinking with every year that passes, because the period after 2014 keeps getting longer.

Two practical notes. First, in 2023 the calculation was restricted for anyone who bought land before 2014 and built an apartment on it afterwards: if construction is not completed by December 31, 2030, the preferred linear calculation will not apply. Second, proposals to phase out the preferred linear calculation have been published in the past. As of this writing those proposals have not become law, but anyone planning to sell such an apartment in the coming years should confirm the current legal position before signing.

A worked example: selling an apartment in north Tel Aviv

The following examples are for illustration only. The index figures are estimated and rounded, and the actual calculation will be made by your lawyer or tax advisor using the exact index figures and the details of the transaction.

Example one: a single apartment in Ramat Aviv Gimel above the ceiling

A couple bought a five room apartment in Ramat Aviv Gimel in 2015 for ₪3,300,000, and paid ₪150,000 in purchase tax, legal fees and brokerage. In 2019 they invested ₪200,000 in a documented renovation. In 2026 the apartment sells for ₪5,600,000, with selling expenses of ₪140,000. It is their only apartment, and it meets every condition of the exemption.

The takeaway: even above the ceiling, the exemption protects most of the gain. What drives the tax is mainly how far the price exceeds the ceiling, which is why every recognized expense that was not documented increases the taxable gain.

Example two: a second apartment in Bavli under the preferred linear calculation

An investor bought a three room apartment in Bavli on January 1, 2008 for ₪1,800,000, with acquisition expenses of ₪60,000. The apartment was rented out as a residence over the years. On July 1, 2026 it sells for ₪4,200,000, with selling expenses of ₪110,000. Assume the index rose 35% over the period and, for simplicity, ignore depreciation.

• Adjusted remaining acquisition value: 1,860,000 times 1.35, which is ₪2,511,000.
• Real gain: 4,200,000 minus 2,511,000 minus 110,000, which is ₪1,579,000.
• Holding period: 6,756 days, of which 2,192 days fall before January 1, 2014, or about 32.4%.
• Exempt portion: about ₪512,300. Taxable portion: about ₪1,066,700.
• Capital gains tax at 25% on the taxable portion: about ₪266,700, compared with about ₪394,750 without the preferred linear calculation.

In this example the taxable gain exceeds the surtax threshold, so an additional charge may apply in the year of sale, depending on the seller’s other income. This is precisely the point at which timing the sale between tax years can change the outcome.

Reporting, payment and the advance: deadlines you must not miss

• Declaration to the Real Estate Taxation Office: the seller and the buyer each file a declaration within 30 days of the sale, meaning from the date the contract is signed, not the handover date. Filing is usually done online by the parties’ lawyers through the Tax Authority’s online sale system.
• Payment of the tax: the seller pays the capital gains tax within 60 days of the sale. Late payment incurs linkage differences and interest, and in some cases penalties as well.
• Advance from the buyer: the buyer transfers to the Tax Authority, out of the purchase price, an advance on account of the seller’s capital gains tax. If the seller bought the apartment after November 7, 2001 the advance is 7.5% of the price, and if the seller bought before that date it is 15%. The advance is paid within 30 days of signing, or once more than 40% of the price has been paid to the seller, whichever is later. A seller entitled to an exemption can request approval in advance and avoid the advance.
• Tax clearances for registration: transferring the rights at the Land Registry (tabu) or with the housing company requires a clearance from the Real Estate Taxation Office. Until the capital gains tax account is closed, the buyer will not be registered and the funds held in trust will not be released.

The seller files a self assessment, and the Tax Authority may audit it and issue a different assessment. That is why the documents should be prepared before signing, not under the pressure of the 30 days. If you are at the planning stage, we also recommend reading what we wrote for property owners who want to sell.

Common mistakes with capital gains tax on property in Israel

1. Assuming there is an exemption without checking the family unit. A small apartment in a spouse’s name, or a share of more than one third in the parents’ apartment, can cancel the entire exemption.
2. Losing receipts. A renovation worth hundreds of thousands of shekels without invoices will not be deducted. Keep a digital file from the day you buy.
3. Missing the window for selling the old apartment. Upgraders who bought a new apartment and did not sell the old one in time discover they own two apartments, and the exemption is lost.
4. Forgetting depreciation on a rented apartment. The difference between the income tax tracks for rental income affects the acquisition value in the gain calculation.
5. Using the exemption on an apartment with a small gain. The single apartment exemption can be used once every 18 months. Sometimes it is better to pay a small tax today and keep the exemption for a larger sale.
6. Ignoring surtax. A large gain added to a high annual income may add several percentage points to the tax, so the year of sale is part of the planning.
7. Inflating the sale price in the agreement. Items that are not part of the apartment, such as furniture, should be defined separately and at a reasonable value. The Tax Authority scrutinizes such transactions closely.

Planning ahead before a sale and when to see a tax advisor

Capital gains tax planning starts months before the apartment is listed, not after there is a buyer. The questions worth clarifying in advance:

• Whether the apartment is a qualifying residential apartment, and the status of any other apartments in the family unit.
• Whether the expected value is close to the ₪5,008,000 ceiling, and what every additional hundred thousand shekels in price means.
• Whether to use the exemption now or keep it, when you own more than one property.
• Whether the preferred linear calculation applies, and how large the exempt portion is based on the purchase date.
• In which tax year it is better to sign, taking surtax and other income into account.
• Which documents are missing: purchase contract, purchase tax assessment, renovation invoices, interest statements from the bank.

When to turn to a tax advisor or a lawyer specializing in real estate taxation: when there is more than one apartment in the family unit, with an inheritance or a gift, for an apartment bought before 2014, at a price close to or above the ceiling, for foreign residents, and for a sale combined with an urban renewal project. At RS Nadlan we accompany sale transactions in north Tel Aviv, in Ramat Aviv Gimel and in the Sharon, working alongside our clients’ lawyers and tax advisors. We do not provide tax advice, but we know how to identify early the points that require review, and to time the marketing process accordingly.

Frequently asked questions

Before you decide to sell

A good sale combines the right price, the right timing and tax planning done in advance. If you are considering selling an apartment in north Tel Aviv or the Sharon and want to understand the full picture before you begin, we would be happy to talk. You can contact us here or call 077-500-4600 (from abroad, +972 77 500 4600).