When business people and investors discuss the “Second Apartment Tax,” it’s easy to imagine a single, monolithic levy—a sort of blanket penalty for the mere fact of ownership. In fact, understanding the Second apartment tax in Israel is crucial due to its unique challenges. In reality, this term is a code name for a sophisticated and complex taxation policy. It is not a single decree, but rather a system of three distinct taxes that every property owner encounters at a different stage in the investment’s life cycle.
Acquaintance with this system begins at the moment of purchase, with the increased Purchase Tax (Mas Rechisah); it continues throughout the period of ownership, with tax on rental income; and culminates on the day of the sale, with the Capital Gains Tax (Mas Shevach). The key to turning the investment into a success lies in the ability to professionally navigate each of these stages.
What Exactly is the “Second Apartment Tax”? Understanding the Big Picture
Acquiring an additional apartment is a significant financial step, but it is also a ticket into a world of taxation that can surprise even the most seasoned investors. The phrase “Second Apartment Tax” is not a formal legal term but a popular moniker for a policy that sharply distinguishes between a single residential apartment—considered a basic necessity—and any additional apartment, which the state views as an investment asset.
From the tax authorities’ perspective, a second apartment is an avenue for generating profit, and therefore, the taxation on it is heavier. This policy has a dual purpose: The first, of course, is to increase state revenues. The second is an attempt to regulate the real estate market—to make apartment investment less attractive, thereby increasing the housing supply for first-time buyers.
The Three Core Taxes Every Investor Must Know
To simplify the picture, imagine the life of the asset as three key events. At each one, you encounter a different tax:
Upon Entry (The Purchase): Payment of Purchase Tax at an increased rate. This is your “entrance ticket” to the world of real estate investments.
During Ownership (Renting): Payment of Tax on Rental Income. This can be thought of as an ongoing payment to the income tax authority on the profit from the property.
Upon Exit (The Sale): Payment of Capital Gains Tax. This is the “exit tax” on the profit accrued from the appreciation in the apartment’s value over the years.
The economic logic is clear: every phase in the investment life cycle—acquisition, holding, and profit realization—is taxed separately. A fundamental understanding of each is the basis for professional tax planning that will prevent costly surprises and maximize your return.
The phenomenon of owning more than one apartment has become very common. If we examine the data, we see an astonishing leap: According to the Central Bureau of Statistics, in 2007, only 2.5% of households owned two or more apartments. A decade later, in 2016, this figure had jumped to 9.7%. This massive increase reflects how drawn Israelis are to real estate investment.
As you can see, every stage in the life cycle of your asset—from the purchase, through the rental period, to the future sale—carries a unique tax liability that must be planned and prepared for in advance.
Deciphering the Purchase Tax on an Additional Apartment
If you’re on your way to a second apartment, the Purchase Tax (Mas Rechisah) is likely the first and highest financial hurdle you will encounter. It is not another small clause in the contract, but a substantial payment that can change the entire economic calculation of the deal. In stark contrast to the purchase of a single apartment, where the state assists buyers with significant concessions, here the rules of the game are completely different.
The state views an additional apartment as an investment asset. Therefore, it imposes a high tax on it from the very first shekel, with no initial exemption or discount. The declared goal is to cool down the real estate market, make the acquisition of investment apartments less attractive, and hopefully influence housing prices in favor of young couples and home upgraders.
In practice, the Purchase Tax has become a central regulatory tool. Over the years, and especially since 2015, the tax rates on a second apartment have jumped dramatically. Currently, the tax rate stands at 8% up to a certain amount (approx. NIS 6 million) and jumps to 10% on any amount above that threshold. This means that every transaction becomes significantly more expensive even before discussing a mortgage or renovation.
Understanding the Actual Tax Brackets
To turn this intimidating concept into a practical working tool, it’s essential to understand how the brackets function. Here is a breakdown of the updated Purchase Tax rates (as of 2024), as they apply to anyone purchasing an apartment that is not their sole residence.
| Purchase Tax Brackets on an Additional Apartment |
| Apartment Value Portion (in NIS) |
| On the portion up to NIS 6,055,070 |
| On the portion above NIS 6,055,070 |
This table clarifies the main point: there is no exemption. There is no minimum amount exempt from tax. Every shekel of the apartment’s price is subject to tax, and the high rates make this expense one of the most important considerations before signing a contract.
Examples of Purchase Tax Calculation
Let’s translate these percentages into real money. Two realistic examples will illustrate the dramatic impact of the tax on the budget.
Example 1: Purchasing an Investment Apartment for NIS 2.5 Million
Assume you found a three-room investment apartment at a cost of NIS 2,500,000. Since the entire amount falls within the first bracket (below NIS 6,055,070), the calculation is simple and direct:
$2,500,000 \text{ NIS} \times 8\% = 200,000 \text{ NIS}$
In this scenario, the total Purchase Tax you will pay is NIS 200,000. This is a massive sum, equivalent to a new family car, and it is added directly to the total cost of the asset.
Important to remember: The gap here is enormous. A sole residence buyer for the exact same amount would pay a Purchase Tax of only about NIS 20,000 (as of 2024). As an investor, you are paying ten times more. This is precisely the legislator’s intention—to significantly increase the cost of real estate investment.
Example 2: Purchasing a More Expensive Apartment for NIS 7 Million
Now, let’s examine a case of purchasing an additional apartment in central Tel Aviv, at a cost of NIS 7,000,000. Here, the calculation is divided between two tax brackets.
Calculation for the First Bracket:
$6,055,070 \text{ NIS} \times 8\% = 484,405.6 \text{ NIS}$
Calculation for the Remainder at the Second Bracket:
The remainder above the first bracket: $7,000,000 \text{ NIS} – 6,055,070 \text{ NIS} = 944,930 \text{ NIS}$
The tax on the remainder: $944,930 \text{ NIS} \times 10\% = 94,493 \text{ NIS}$
Total Tax:
$484,405.6 \text{ NIS} + 94,493 \text{ NIS} = 578,898.6 \text{ NIS}$
In this case, the Purchase Tax amounts to almost NIS 580,000. This sum is enough in itself to purchase a small apartment in the periphery.
These figures clarify why early planning is not a recommendation but a necessity. Ignoring the Purchase Tax or calculating it inaccurately can turn a promising deal into a loss, even before you’ve received the keys. Therefore, every investor must include this heavy expense as an inseparable part of the initial purchase budget.
Ongoing Taxation: The Double Front of Renting and Selling
Did you get the keys to your second apartment? Congratulations. But it’s important to understand, that’s only the starting line. Unlike the Purchase Tax, which was a one-time (and painful) hit to the pocket, the taxation on an additional apartment is a marathon. It will accompany you throughout the asset’s life.
From now on, you are essentially managing two main tax fronts simultaneously: the ongoing tax on your rental income, and the future tax on the profit when you decide to sell. Proper management of these two fronts is the difference between a successful investment and a financial disappointment. Let’s break it down, starting with the monthly income and continuing to the day of sale.
Managing Tax on Rental Income
When the apartment is rented and the money starts flowing into your account, the Tax Authority expects its share. The law offers three possible tracks for paying this tax, and the choice between them is a strategic decision that can save thousands of Shekels every year.
The (Almost) Full Exemption Track: If your total monthly rental income is below the set ceiling (as of 2024, NIS 5,654), you are completely exempt from tax. This sounds great, but there is “fine print.” If you exceed the ceiling, the exemption becomes partial and is calculated according to a formula until it disappears entirely. The major disadvantage here is that you cannot deduct ongoing expenses or depreciation, which can significantly inflate the Capital Gains Tax you pay on the day of sale.
The Fixed 10% Track: The most popular and simplest track. You pay a fixed tax of 10% on all rental income, regardless of your other income. The certainty and simplicity appeal to many investors, but here too, as in the exemption track, you cannot offset expenses or claim depreciation. This means paying a higher Capital Gains Tax in the future.
The Marginal Tax Track (The Regular Track): In this track, the income from the apartment is added to your regular income (e.g., from your salary) and taxed according to your personal tax bracket, which can reach 47% or 50%. So why would anyone choose it? Because here lies the great advantage: you can deduct all recognized expenses—repairs, insurance, mortgage interest, and also claim depreciation. This track is ideal for investors with high expenses on the property or those who are in a relatively low tax bracket.
Choosing the tax track is a critical decision. It depends on the rent amount, maintenance expenses, your total income, and especially your plans to sell the asset in the future. A mistake in selection can be costly, both today and in ten years.
Preparation for Capital Gains Tax on the Day of Sale
Every investor dreams of the exit—selling the asset for a handsome profit. But it’s important to remember: you pay tax on this profit, legally termed “Shevach” (appreciation). The Capital Gains Tax is imposed on the difference between the sale price and the purchase price, after deducting all recognized expenses you had along the way. The tax rate on the real profit (i.e., net of inflation) is 25%.
The Shevach is essentially your net profit from the entire investment. The basic formula is simple:
The secret to saving tens or even hundreds of thousands of Shekels lies in the last component—“recognized expenses.” The more receipts you collect for such expenses, the lower the taxable Shevach will be.
The Power of Receipts: Don’t Throw Anything Away
The most common and expensive mistake investors make is to underestimate the paperwork. Every Shekel you spent on the asset for which you have a receipt is a Shekel that can come back to you as a tax saving. Obsessive retention of documents is not a recommendation; it is a financial necessity.
So, which expenses can be offset? The list is long and includes almost every expense directly related to the property:
Acquisition Expenses: The Purchase Tax you paid, attorney fees, brokerage fees, and appraisal costs.
Improvement Expenses: Costs of major renovation, adding a room, replacing a kitchen, installing central air conditioning—any substantial upgrade that increased the apartment’s value.
Sale Expenses: Brokerage fees and attorney fees paid upon selling the asset.
Taxes and Levies: Improvement Levy (Heitel Hashbacha) paid to the municipality.
For example: You bought an apartment for NIS 1.5 million and sold it for NIS 2.5 million. Superficially, the profit is one million Shekels. But if over the years you documented recognized expenses totaling NIS 200,000 (Purchase Tax, attorney, major renovation, etc.), the real Shevach for tax purposes drops to only NIS 800,000. At a tax of 25%, that’s a saving of NIS 50,000 that stays in your pocket. All this, solely thanks to organized management of a receipt file.
Concessions and Exemptions Worth Utilizing
The taxation on a second apartment sounds like an almost insurmountable economic obstacle, but it’s important to understand that the law is not designed only to create difficulties. It also offers several strategic, perfectly legal “escape routes” intended for certain life situations.
A deep familiarity with these concessions and exemptions can save you immense sums and turn a deal that seemed borderline into a particularly worthwhile one. This is not a matter of “tricks” but of precise tax planning based on knowledge. Understanding these options is an essential tool for any investor or property owner, allowing them to navigate the tax system intelligently and creatively.
The Opportunity Window for Home Upgraders
One of the most common scenarios is that of “home upgraders“—people who buy a new apartment while simultaneously planning to sell their current one. On paper, the moment you sign the new purchase contract, you own two apartments. Such a situation should obligate you to pay full Purchase Tax, just as if you were an investor.
But this is exactly where the legislator steps in and acknowledges the complexity. The law offers an elegant solution: if you sell your old apartment within a specified timeframe, you can benefit from the lower tax brackets of a single apartment. This time window is critical, and it is vital to adhere to it precisely:
When purchasing a pre-owned apartment: You must sell the existing apartment within 18 months from the date of purchasing the new apartment.
When purchasing an apartment from a contractor: The period is more generous, allowing you to sell the old apartment within 12 months from the date of receiving possession of the new apartment.
Adherence to these timetables is everything. A one-day delay can cost you a tax difference of tens or even hundreds of thousands of Shekels. Therefore, meticulous planning of the sale and purchase process is the key to maximizing this benefit.
Proper planning of a “home upgrade” transaction is the perfect example of how prior legal consultation generates enormous economic value. The difference between paying a Purchase Tax of NIS 200,000 and paying NIS 20,000 depends entirely on understanding the conditions and adhering to the timelines set by the law.
Transferring an Apartment as a Gift to a Relative
Another clever strategy is transferring an apartment as a gift to a first-degree relative (parents, children, spouse). This solution can be suitable for various situations, but it is mandatory to understand all its implications in depth.
Tax Benefits: The transfer of an apartment to a relative without consideration is exempt from Capital Gains Tax. In addition, the recipient of the gift will pay a significantly reduced Purchase Tax, at a rate of only one-third of the tax they would normally pay. If the transfer is between spouses living together, there is a full exemption from Purchase Tax as well.
“Cooling-Off Periods”—Here is the Trap: The law stipulates “cooling-off periods” designed to prevent fictitious transactions aimed at tax evasion. If the recipient of the gift decides to sell the apartment before the end of this period, they may lose the Capital Gains Tax exemption granted to them. The period varies: three years if they live in the apartment, or four years if they have not resided in it.
Transferring a gift is a powerful tool, but it requires careful planning. It affects the family’s ownership structure and has long-term implications for the future rights of the person receiving the asset.
Additional Scenarios and Specific Exemptions
Beyond these two central cases, there are several other specific situations where significant concessions can be obtained when paying the Second Apartment Tax.
Apartment Received by Inheritance: Not every apartment you receive by inheritance automatically disqualifies you from enjoying “single apartment” benefits. If your share in the inherited apartment does not exceed 50%, you can still purchase an additional apartment and benefit from the low tax brackets.
Urban Renewal: Apartment owners in Pinui-Binui or TAMA 38 projects are entitled to a full exemption from Purchase Tax on the new apartment they receive from the developer.
Disabilities and Eligible Populations: The law grants significant concessions in Purchase Tax to certain populations such as disabled individuals, new immigrants (Olim Chadashim), and bereaved families, even if it is not their sole apartment.
Each of these tracks requires adherence to precise conditions and a personal examination of the circumstances. Professional consultation before taking any action is not just a recommendation but a necessary step to ensure you save the maximum amount, all within the bounds of the law, of course.
And If I Already Have Two Apartments? Meet the ‘Multiple Property Tax’
So, you cleared the hurdle of the Second Apartment Tax, and that is certainly an achievement. But in the world of real estate, every step forward opens the door to a new challenge. For investors aiming to build a broader property portfolio, the state previously prepared an additional, focused, and painful layer of taxation—the Multiple Apartment Tax, or as it was commonly called, the ‘Third Apartment Tax’.
Although this tax was a brief, passing episode, it was a direct attempt by the legislator to cool down the market for “heavy” investors. The logic was simple: to make the holding of multiple apartments less worthwhile and to push investors to release assets onto the market. The ultimate goal was to increase the supply for young couples and home upgraders.
Even though it was canceled, understanding the mechanism and the logic behind it is a mandatory lesson for anyone thinking about a long-term real estate strategy. It is a glimpse into the state’s way of thinking.
How Did It Work in Practice?
The law directly targeted large investors. Any individual or household that held three or more residential apartments was liable for payment.
The calculation was annual and was designed to directly bite into the ongoing return from rent. The formula stipulated a payment of 1% of the value of the cheapest apartment in your portfolio, up to an annual ceiling set by law.
Why the cheapest apartment? Because the goal was not to punish the holding of luxury assets but to create a financial incentive to sell the asset that is “easier” to release—usually, the smaller investment apartment, your “third” or “fourth” one.
Let’s talk numbers. Suppose you had three apartments, and the cheapest one was worth NIS 1.5 million. In this situation, you would be required to pay the state an additional NIS 15,000 per year. This is an amount that significantly erodes the rental yield and could turn a marginal deal into a non-profitable one altogether.
Did the Tax Really Affect the Market?
Absolutely. In 2017, with the law’s entry into force, anyone who held three or more apartments was liable for an annual tax of 1% of the apartment’s value, up to a ceiling of NIS 18,000 per year. It’s important to remember there was also an entry threshold: the tax did not apply to apartments whose value was less than NIS 1,150,000.
The data on the ground showed that the tax may not have dramatically lowered housing prices, but it certainly stalled investors’ appetite to expand. The public debate was fierce: on the one hand, it was seen as a legitimate tool for achieving social goals. On the other hand, investors argued that it harmed property rights and distorted the market.
Ultimately, the High Court of Justice (Bagatz) canceled the law. But this story remains a glaring warning sign. It reminds us that the state views taxation as a powerful tool that can change the rules of the game and directly impact the profitability of your investment.
Understanding this move is critical for future planning. It emphasizes how important it is to keep a finger on the pulse, understand the regulatory climate, and prepare for changes that can shuffle the deck and alter the net return on your investments.
Frequently Asked Questions and Short Answers on Second Apartment Tax
The world of real estate can feel like a maze of legal terms and tax clauses. Even veteran investors sometimes find themselves confused. To bring order to the topic, we have compiled the most pressing questions that repeatedly arise from our clients, with straightforward answers to help you understand the big picture.
I bought a new apartment but haven’t sold the old one yet. Will I pay the Second Apartment Purchase Tax?
Not necessarily. If you are in the process of upgrading, i.e., “home upgraders,” the state grants you a time window to sell your old apartment and still benefit from the reduced Purchase Tax of a “single apartment.” The saving can amount to tens or even hundreds of thousands of Shekels.
Crucial point: The precise time frame allotted for the sale varies between buying a new apartment from a contractor and purchasing a pre-owned one. Adherence to this timetable is critical—this is the point where most people stumble and lose a lot of money.
I received an apartment as a gift from my parents. Do I need to pay any tax?
The transfer of an apartment as a gift between first-degree relatives (parents, children, spouses) is exempt from Capital Gains Tax and will generally be subject to a significantly reduced Purchase Tax of only one-third. The good news is that the saving is immediate. The news you need to understand is that from the moment the apartment is in your name, you are considered an owner of an additional apartment for all intents and purposes.
This means that for any future apartment purchase, you will pay full Purchase Tax according to the second apartment brackets. In addition, there are “cooling-off periods“—if you sell the gifted apartment too quickly, tax restrictions may apply. This is a move with long-term implications that requires careful planning.
Receiving an apartment as a gift is not just a “here and now” transaction. It changes your tax status for years to come and affects every future real estate transaction. It’s important to understand all the implications before rushing to the Land Registry (Tabu).
How can I legally reduce the Capital Gains Tax when I sell the apartment?
The best and most legal way to do this is simple: documenting expenses. The law allows you to offset almost every expense you had on the asset over the years against the profit (Shevach). Every receipt you have saved is worth money.
Which expenses can be offset?
Transaction Costs: Attorney fees and brokerage (both for purchase and sale), and of course, the Purchase Tax you paid when you bought it.
Asset Improvement: Any significant renovation that increased the apartment’s value—replacing the kitchen, flooring, expanding rooms, etc.
Taxes and Payments: Improvement Levy (Heitel Hashbacha) paid to the municipality, consent fees to the Israel Land Authority, and more.
A tidy file with all receipts and invoices is your secret weapon against the Tax Authority. This is the difference between paying unnecessary tax and saving tens of thousands of Shekels.
Can I simply register the apartment in my children’s name and thus avoid the tax?
Technically, yes. Registering an apartment in an adult child’s name is essentially a “transfer as a gift,” as explained earlier. This move can allow you, the parents, to purchase an additional apartment and enjoy the “single apartment” Purchase Tax rate. But, and this is a big but, this move has significant implications.
Firstly, the apartment becomes the full and legal property of the children. Furthermore, you “burn” their future eligibility for first-time buyer benefits, such as Purchase Tax discounts or participation in government programs. This is a complex strategic decision that must be weighed carefully and for which you must receive personalized consultation.
Conclusion: How to Turn the Second Apartment Tax from an Expense into a Strategic Investment
The correct handling of the complex tax world of a second apartment is much more than a technical understanding of numbers; it is the art of strategic vision. The success of your investment is not determined solely by the purchase or sale price but by the meticulous planning of every stage along the way—from correctly calculating the Purchase Tax, through the smart selection of the tax track for rental income, to precise preparation for paying the Capital Gains Tax on the day you decide to sell.
A deep familiarity with the exemptions, concessions, and options available in the law—such as those intended for home upgraders or transfers within the family—can be the difference between an average deal and a brilliant one, saving you hundreds of thousands of Shekels. But it’s crucial to remember: the realization of these benefits depends on strict adherence to the conditions and deadlines set by the law. There is no room for error here.
In the world of real estate, legal counsel is not a privilege, but an essential working tool. Correct tax planning is what prevents costly mistakes and maximizes the potential return on your asset. It is the best investment you will make.
Legal Clarification
The information in this article is general only and is intended to enrich your knowledge. It does not constitute legal advice, tax advice, or any substitute for professional and personal advice from a qualified attorney or tax consultant. Do not rely on what is written here to perform or refrain from performing any actions.