Quick Answer: Betterment tax (mas shevach) is a capital gains tax on the sale of Israeli real estate, currently levied at 25% on the real gain (after inflation adjustment). A widely used exemption — the single-apartment exemption — allows sellers of their sole residential apartment to sell tax-free every 18 months, subject to conditions. Non-residents and new immigrants have special rules.

1. Overview

When you sell real estate in Israel at a profit, you are liable for betterment tax (mas shevach) — Israel's capital gains tax on real property. This tax is levied under the Land Taxation Law (Betterment, Sale and Acquisition) 1963 (Chok Misuy Mekarkein) and is one of the most significant tax costs in any Israeli real estate transaction.

Understanding mas shevach — how it is calculated, what exemptions apply, and how it is paid — is essential for anyone selling Israeli property, whether a resident, non-resident investor, or new immigrant.

2. What Is Mas Shevach?

Mas shevach (shevach = appreciation/improvement) is a tax on the real increase in value of Israeli real property from the date of purchase to the date of sale. It is conceptually a capital gains tax, but applied specifically to land and buildings (both residential and commercial).

The tax applies to the seller of the property. The buyer is responsible for purchase tax (mas rechisha) — a separate tax. In every Israeli real estate transaction, both taxes are reported to the Israel Tax Authority's Real Estate Taxation Office (Misrad HaMisui HaMekarkein).

Betterment tax should not be confused with the municipal hetel hashbacha (improvement levy) charged by local authorities when they approve planning improvements — these are different charges.

3. How Betterment Tax Is Calculated

The calculation of mas shevach involves the following steps:

  1. Determine the sale price: The gross consideration received for the property (including any amounts attributed to fixtures, equipment, or other items — the Tax Authority may challenge allocations).
  2. Determine the "original cost" (shlav rechisha): The price paid when the property was originally acquired, plus acquisition costs (purchase tax, lawyer's fees, agent's fees at purchase), plus improvement costs made during ownership (documented renovations).
  3. Index the original cost: The original cost is adjusted for inflation using the Israeli consumer price index from the purchase date to the sale date. This inflation adjustment reduces the taxable gain.
  4. Calculate the gross gain: Sale price minus the inflation-adjusted original cost.
  5. Apply any applicable exemptions or deductions: The single-apartment exemption or other exemptions reduce or eliminate the gain.
  6. Apply the tax rate: The remaining taxable gain is multiplied by the applicable rate.

The calculation must be reported on a formal declaration to the Real Estate Taxation Office within 30 days of the sale (Section 73(a) of the Real Estate Taxation Law), and the tax must be paid within 60 days of the sale (Section 90A).

4. Tax Rates

The current betterment tax rates depend on when the property was acquired:

  • Qualifying residential apartment bought before 1 January 2014 and not fully exempt: the share of the real (inflation-adjusted) gain that accrued up to 1 January 2014 is exempt, and the rest is taxed at 25% (Section 48A(b2), the "linear exemption").
  • Other property (commercial premises, land, or an apartment that is not a qualifying residential apartment) bought before 1 January 2012: the real gain is split by time. For an individual, the part up to 7 November 2001 is taxed at the top marginal income tax rate, the part from 7 November 2001 to 31 December 2011 at up to 20%, and the rest at 25% (Section 48A(b1)). Property bought later is taxed at a flat 25% of the real gain.

For non-residents selling Israeli real estate, the same rates apply — betterment tax is not differentiated by residency status at the headline rate level. However, treaty provisions may affect the allocation of taxing rights in some cases.

5. The Single-Apartment Exemption (Patur Dirat Yachid)

The most widely used and significant exemption from betterment tax is the single-apartment exemption. Under this exemption, a seller who owns only one residential apartment in Israel can sell it completely tax-free, subject to the following conditions:

  • The seller owns only one residential apartment in Israel at the time of sale (or an ownership share of up to one-third in a second apartment)
  • The seller has not used the single-apartment exemption in the 18 months preceding the sale
  • The sale price does not exceed NIS 4,846,000 (2024 threshold — indexed annually). Sales above this threshold receive partial exemption, with the excess above the threshold taxed at 25%.

The exemption applies regardless of whether the property was the seller's primary residence — owning a single apartment anywhere in Israel and renting it out does not disqualify you from the exemption, provided all other conditions are met.

In Practice: Under Section 49(c) of the Real Estate Taxation Law 1963, the 18-month cooling-off period between uses of the single-apartment exemption is calculated from the earlier sale date to the later sale date — not from closing or registration. These calendar dates need to be tracked carefully on every sale of residential property, because a one-month miscalculation can cost NIS 150,000–300,000 in betterment tax on a typical Tel Aviv apartment. The Israel Tax Authority's Real Estate Taxation Office (Misrad HaMisui HaMekarkein) cross-checks all prior exemption uses when processing a new claim. Confirm your last exemption date with your attorney before accepting any purchase offer — once the contract is signed, the date is locked in.

Important for non-residents: Non-residents are entitled to the single-apartment exemption only if they do not own a residential apartment abroad. This is a significant limitation for foreign nationals who own a home in their country of residence and an apartment in Israel.

6. Other Exemptions and Reductions

  • Inherited property: Where property is inherited, the heir "steps into the shoes" of the original owner for betterment tax purposes. The original cost is the amount paid by the deceased, and the period of ownership starts from the deceased's acquisition date. The single-apartment exemption may be available to the heir.
  • Gifted property: Under Section 62 of the Real Estate Taxation Law, a gift of real estate from an individual to a relative is exempt from betterment tax at the time of the gift. For this exemption a relative is a spouse, a parent or grandparent, a child or other descendant, a spouse's descendant, or the spouse of any of these. A brother or sister counts only where the donor received the property from a parent or grandparent as a gift or by inheritance. The recipient inherits the original cost and holds potential liability on a future sale.
  • Spouses: A married couple may be treated as a unit for the single-apartment exemption — meaning they can only claim the exemption jointly, and both must qualify.
  • Disabled persons and elderly: Certain additional exemptions and reductions are available for specific categories.

7. Non-Residents and New Immigrants

Non-residents are fully subject to Israeli betterment tax on gains from selling Israeli real estate. However, as noted above, the single-apartment exemption is not available to non-residents who own residential property abroad.

The 30-day reporting deadline, the 60-day payment deadline and the obligation to pay tax before completing the transaction apply equally to non-residents. In practice, the tax must be arranged before or at the closing — this is coordinated through the lawyers managing the transaction.

In Practice: Under Section 73 of the Real Estate Taxation Law 1963, the betterment tax declaration must be filed with the Israel Tax Authority's Real Estate Taxation Office (Misrad HaMisui HaMekarkein) within 30 days of the sale date — meaning the date the binding purchase agreement was signed, not the registration date. The tax itself is due within 60 days of the sale (Section 90A). Late filing incurs a fine under Section 94A for every two weeks of delay (about NIS 310 in 2026; the amount is updated each January), and tax not paid within 60 days of the sale carries linkage and interest under Section 94. For sellers living abroad, the 30-day window is genuinely tight: a notarised, apostilled power of attorney for the Israeli attorney, original purchase documents, and all renovation invoices must be assembled and transmitted internationally. Overseas sellers are well advised to start gathering documents the moment they decide to sell, not the day the contract is signed.

An Australian seller sought advice after selling a Haifa apartment he had bought in 2009 for NIS 680,000, for NIS 2.35 million in 2024. He had lived in Australia throughout and owned his home there, so he could not claim the single-apartment exemption. What he had not expected was that the linear exemption in Section 48A(b2) of the Real Estate Taxation Law 1963 still helped him: because the Haifa flat was a qualifying residential apartment bought before 2014, the share of the real gain that accrued before 1 January 2014 (about 5 of his 15 years of ownership, one third) was exempt, and only the remaining two thirds was taxed at 25%. Ignoring inflation indexation for simplicity, the NIS 1.67 million gain produced betterment tax of about NIS 278,000. Collecting his original renovation invoices (NIS 210,000 of documented improvements) cut the gain to NIS 1.46 million and the tax to about NIS 243,000, and indexing the 2009 cost reduced it further. Non-residents buying Israeli real estate today should understand that apartments bought after 1 January 2014 get no linear exemption at all.

Common Mistake: Sellers who receive inherited Israeli property often assume they benefit from a "step-up" in cost basis to the property's value at the date of death — reducing the taxable gain. This is wrong under Israeli law. Under Sections 26(a)(2) and 37(1)(g) of the Real Estate Taxation Law 1963, the heir of anyone who died on or after 1 April 1981 steps into the shoes of the deceased: the deceased's acquisition value and acquisition date carry over, not the death-date value. A Jerusalem apartment bought in 1985 for the equivalent of NIS 120,000 and sold by the heir for NIS 3,500,000 shows a nominal gain of about NIS 3,380,000, measured from the 1985 cost even though the heir paid nothing for the property. Inflation indexation removes part of that gain, and for a qualifying residential apartment the share of the real gain that accrued before 1 January 2014 is exempt (Section 48A(b2)). The rest is taxed at 25% unless a full exemption applies, such as the inherited-apartment exemption in Section 49B(5). Factoring this liability into estate planning before death — not after — is the only way to mitigate it.

New immigrants (olim): Olim who sell Israeli real estate are generally subject to betterment tax at the standard rate. However, there may be transitional reliefs available depending on when the property was acquired relative to the date of aliyah. The 10-year foreign-source income exemption does not extend to gains on Israeli real estate — those gains are Israeli-source by definition.

8. Payment and Reporting

Betterment tax must be reported and paid through the following process:

  1. File a betterment tax declaration with the Real Estate Taxation Office within 30 days of the sale date (the signing of the binding sale agreement, not the date of registration).
  2. Submit supporting documentation: Original purchase documents, invoices for improvement costs, proof of inflation adjustments, and any documents supporting an exemption claim.
  3. Obtain a clearance certificate: The Real Estate Taxation Office issues a clearance (tofes mishpat) confirming the tax position. This certificate is required to complete the registration of the transfer of title in the Land Registry (Tabu). Without it, the buyer cannot register ownership in their name.
  4. Pay the tax within 60 days of the sale date (Section 90A); any further amount set by the Tax Authority in a later assessment is paid when that assessment is issued.

Failure to file within 30 days, or to pay within 60 days, incurs penalties and interest. The process is managed in practice by the real estate lawyer handling the transaction — ensuring timely filing is part of standard conveyancing practice in Israel.