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Calculating Appreciation Tax

This year, a number of changes stemming from Amendment 76 of the Land Appreciation Tax Law have gone into effect, amongst them some significant changes to the tax exemptions related to selling apartments. One of the biggest changes is the cancellation of Article 49B(1) of the Law, which granted tax exemptions on appreciation (capital gains) tax for the sale of one apartment every 4 years, which was the main exemption used by the public, and which constituted a broad tax planning tool (such as listing the apartment in children’s names, transferring ownership for free, etc.)

This section was in effect until the end of 2013. Together with the cancellation of Section 49B(1), in order to ease things somewhat for taxpayers, Amendment 76 established a transition period beginning on 1.1.14 and ending on 31.12.17, during which the seller is entitled to significant tax benefits: all apartments sold during the transition period will be entitled to an exemption on the element of appreciation accumulated (relatively) for the years prior to the transition period, and for the tax accrued (relatively) during the transition period will be paid at a rate of 25%.

For example:

Consider a person who purchased an apartment on 01.01.85 and sold it on 31.12.14 (after being owned for 30 years), having appreciated by 30,000 NIS over the years. The appreciation accumulated for the first 29 years (29,000 NIS) will be exempt from taxes. The remaining 1,000 NIS will be taxed at a rate of 25% and the total Appreciation Tax will therefore be 250 NIS.

It is important to emphasize that the entitlement to avail oneself of the reduced tax is subject to additional conditions prescribed by law and which were added in Amendment 76, and accordingly, prior to any sale of the apartment or its transfer without charge, you may want to examine all the circumstances of the sale / transfer rights , in accordance with the new provisions.

It should be noted that as part of Amendment 76, the provisions of Article 49B(2) have also been changed, which granted exemptions to a person selling his one and only apartment. We will try to elaborate on this in a separate article.