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

Amendment 76 took effect on 1 January 2014 and removed the exemption that let owners of more than one apartment sell one tax-free every four years. As transitional relief for apartments already owned, it added Section 48A(b2) to the Real Estate Taxation Law. When a qualifying residential apartment (dirat megurim mezaka) bought before 1 January 2014 is sold without a full exemption, the real gain is divided in proportion to the days of ownership before and after that date (both slices are defined in Section 47). The slice up to 1 January 2014 is exempt, and the slice after it is taxed at up to 25%. The inflationary amount on such an apartment is taxed at 0% (Section 48A(c)(2)). The allocation is purely by time, with no attempt to measure when prices actually rose.

The exemption has conditions. The property must be a qualifying residential apartment, and practitioners note that under the Amendment 76 transitional provisions the seller must also have been entitled to the pre-2014 exemption, which in practice means not having sold another qualifying apartment with an exemption in the four years before the sale. Non-residents can use the linear exemption even if they own a home abroad and so cannot claim the full exemption. Two carve-outs are in the section itself: where the price reflects additional building rights, Section 48A(b3) limits the linear exemption to the apartment value plus the extra exemption amount in Section 49G and taxes the rest at the ordinary rates; and under Section 48A(b4) it does not apply where no apartment stood on the land either when it was bought or on 1 June 2023 and the apartment is completed after 31 December 2030. Property that is not a qualifying residential apartment, such as commercial premises or land, is still split by time under Section 48A(b1), but nothing is exempt: for an individual, the real gain up to 7 November 2001 is taxed at the top marginal income tax rate under Section 121 of the Income Tax Ordinance, the gain from 7 November 2001 to 31 December 2011 at up to 20%, and the gain from 1 January 2012 at 25%. That 20% rate never applied to the pre-2014 slice of an apartment. An Israeli real estate tax attorney or certified accountant (roa cheshbon) should prepare the calculation, since errors in the day count or inflation adjustment are a common cause of disputed assessments.

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

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