What is the linear allocation method for calculating betterment tax in Israel?

Before January 1, 2014, Israeli real estate gains were typically taxed at a preferential rate of 20% for properties held by individuals. Amendment 76, which took effect on that date, raised the standard rate to 25% for most sellers but introduced the linear allocation mechanism as a transitional relief measure for properties already held at the time of the change. Under Section 48(a2) of the Real Estate Taxation Law, the total real gain (sale price minus inflation-adjusted purchase price) is divided into two segments. The "old-law gain" accrues from the original purchase date through December 31, 2013, and is taxed at the applicable pre-2014 rate (20% for most individuals). The "new-law gain" accrues from January 1, 2014 through the sale date, and is taxed at 25%. The allocation is purely based on the fraction of days in each period relative to the entire holding period, with no attempt to estimate actual market appreciation in each sub-period.

The linear method matters most for non-residents and multiple-property owners who cannot claim the single-apartment exemption (patur dira yechida), since the exemption would relieve the full gain in any case. Sellers who purchased before November 7, 2001 benefit from an additional transitional rule: the gain accrued up to November 6, 2001 is taxed at 20% under a separate provision, meaning the full pre-2014 segment attracts the lower rate for these long-term holders. Calculating the exact figures requires knowing the original purchase price in historical shekels, adjusting for inflation using the Consumer Price Index, and applying the day-count ratio accurately. An Israeli real estate tax attorney or certified accountant (roa cheshbon) should prepare the betterment tax return — errors in the day-count or inflation adjustment are among the most common causes of disputed assessments.

From the full guide: Betterment Tax (Mas Shevach) on Israeli Real Estate: Complete Guide

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