• Gedaliah Borvick

A Purchase Tax Loophole

Updated: 5 days ago

Entrance to Hashmonaim (Gedaliah Borvick)

In 2015, Minister of Finance Moshe Kahlon unveiled a comprehensive plan to reform the real estate industry. The plan comprised numerous “supply side” solutions to increase the number of new housing units entering the market. These plans included laws to make more land available for development and streamlining the planning and approval process to stimulate the rapid construction of new housing units.

Kahlon also addressed the “demand side” of the equation – with the hope to reduce sale prices by tempering investor demand – by raising acquisition taxes on investment properties. An “investment property” is defined as a property purchased by either an Israeli who already owns a primary residence or a foreign buyer who owns a home overseas. The purchase tax (known as “mas rechisha”) for overseas buyers and investors was raised to 8% on the first NIS 4.8 million NIS (by 2020, the number has risen to ~5.1m) and 10% above that amount.

Imagine my interest when my colleague Joe Offenbacher, the maven of the Hashmonaim market, shared with me snippets from an enlightening conversation with Yariv Aharon, a highly regarded real estate and zoning lawyer. The gist of that discussion was that there is an acquisition tax loophole that benefits overseas buyers.

Overseas buyers purchasing homes in communities in Yehuda and Shomron (“over the green line” or the “West Bank” for the supposedly ‘politically correct’), such as Maale Adumim, Efrat, and Hashmonaim, can receive a full release from paying the purchase tax if the purchasers have not yet made aliyah, and if they and their parents have never had a teudat zehut (Israeli identity card). Although it sounds counter-intuitive, purchasing a home in Yehuda and Shomron prior to making aliyah can save you significant money.

For example, we recently sold a lovely home in Hashmonaim for almost 2,900,000 NIS. An Israeli family purchasing the home as their primary residence would pay an acquisition tax of about 62,000 NIS or almost $16,000, based on a sliding scale starting at 0%. An Israeli purchasing this home as an investment (not their primary residence) would pay 232,000 NIS or almost $60,000 (8%, as explained above). And an overseas buyer – even if they own real estate overseas – will pay 0 NIS. As you see, this loophole presents a significant savings for our overseas clients.

This loophole exists due to the fact that, for political reasons, these communities have never been officially annexed. Accordingly, the applicable law in these territories follows Jordanian law, as defined and applied by the Israeli army’s governing arm, which does not tax overseas buyers on real estate purchases.

If you are considering purchasing a home in Yehuda and Shomron, we recommend that you retain a seasoned real estate attorney, such as Yariv Aharon (aharon@yylaw.co.il), to ensure that you take full advantage of all the financial benefits that you are entitled to.

Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at gborvick@gmail.com.

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