The new law prescribes that, as of January 1, 2017, every taxpayer must pay tax annually (January through December) for every residential apartment that he owns in excess of two apartments, at the sum defined pursuant to the provisions of the law. The taxpayer will be allowed to choose which of his apartments he deems to be his first two apartments, and which shall be taxable under this law.

In other words, owners of three and more apartments shall be taxed in respect of every additional apartment owned as of the third apartment, according to the percentage of his ownership in the said additional apartments.

Exception: the law does not apply to a taxpayer if the value of all apartments he owns, after deducting the apartment with the highest value, is less than a total of NIS 1,150,000.

Who is liable for tax?

Any individual (including a spouse – unless permanently residing at a different address – and minor children) owning a number of residential apartments, when the aggregate percentage of his ownership of these properties is at least 249%.

A residential apartment owned through a closely-held association (i.e. a partnership or company that has five or fewer direct or indirect owners) is tantamount to a residential apartment owned by an individual.

The law also defines residential apartments that are excluded from application of the law, including, inter alia, a residential apartment owned by a non-profit entity (amutah), a residential apartment used for long-term rentals pursuant to a government auction, a residential apartment that is being leased under the Tenant Protection Law, a residential apartment that constitutes business inventory for the purposes of income tax, a residential apartment obtained by way of inheritance, provided that it was not let out during the first year after the death of the testator (in any event, it shall be counted as an additional apartment after the first year).

An apartment that was lawfully split shall be deemed a single apartment.

What is the tax rate?

One percent of the value of the apartment, but not more than a total of NIS 18,000 per annum in respect of every apartment liable for such tax.

The value of the apartment is determined according to economic, social and geographic indicators, taking into account the size of the apartment and is calculated using the formula specified in the addendum to the law.

The sum of the tax in respect of ownership of a portion of an apartment shall be calculated according to the taxpayer’s relative percentage of ownership of the apartment.

Declaration and reporting

For the 2017 tax year, the taxpayer himself must file a declaration with the tax authorities by March 31, 2017, which includes, inter alia, details about the residential apartments he owns and the sum of the tax in respect thereof.

As of the 2018 tax year, the real-estate tax administration will send a notice to taxpayers by the end of January of the relevant tax year specifying the apartments liable for tax and the sum of the tax in respect thereof. Any taxpayer who receives such a notice has 30 days to select a different residential apartment that he owns to be charged tax and the apartment he selects will be liable for tax until the end of that tax year.

Taxpayers must also notify the real-estate tax administration about changes that occurred during the tax year in the number of apartments that they own – whether they sold or purchased apartments, as well as about any changes that were made, if any, in the size of any of the apartments they own.

The real-estate tax administration will operate and maintain a computerized system on the ITA’s website that enables taxpayers to file online reports directly with the ITA and to compute the tax imposed on them, according to details that they enter.

Tax payments and collections

Taxpayers are required to pay the tax in two installments, the first by June 30 of the tax year and the balance by December 31 of the tax year.

Exemptions and credit for a sale of an apartment

Pursuant to this law, a taxpayer who sells a residential apartment by October 1, 2017 will be exempt from paying the pro rata sum of the annual tax in respect of the apartment that he sold, for the period when the apartment was still under his ownership, provided that the sale was not to a relative.

Furthermore, a taxpayer who sells a residential apartment by October 1, 2017 will receive a capital gains tax credit, provided that the sale fulfills all of the following conditions:

(1) The sale is not to a relative;

(2) The sale is not for no consideration;

(3) The buyer does not own an apartment or owns a single apartment and undertook to sell it within 18 months of the purchase date;

(4) The recipient of the credit does not purchase an apartment between December 16, 2016 and December 31, 2020 (unless he purchases an apartment subject to purchase tax at the brackets of a single apartment).

The credit will be equal to the lower of (i) the capital gains tax imposed on the taxpayer in respect of the sale, or (ii) NIS 85,000.

The credit will be given in respect of a maximum of three apartment sales.

Exception: if at issue is a person owning three and more apartments to whom the law does not apply (as referred to above – the exception relating to the aggregate value of all investment properties), then his credit, in the event of a sale and the fulfillment of the above conditions, will be a total of NIS 15,000 or 50% of the betterment tax imposed on him, whichever is lower.