MKs Seek to Provide Relief for Third Apartment Tax ‘Victims’

As opponents of the Third Apartment Tax seek to invalidate the law in the High Court – there are currently two petitions against the law pending – the Knesset is seeking to ease the economic burden on Israelis who sell their property in order to avoid the tax. The Knesset Economics Committee is set to approve benefits for those who sell apartments, exempting them from several taxes, including a capital gains tax, which could amount to as much as NIS 75,000.

The tax, which is part of the Arrangements Law that accompanies the state budget, was to kick in on January 1st. Under the law, landlords must pay a 1-percent tax each month on the assessed value of each home or apartment they own, beginning with the third property, up to a limit of NIS 1,500 per month, a total of NIS 18,000 a year. As the average value of homes in most cities is more than NIS 1.5 million, it is expected that most of the Israelis who will have to pay the tax will pay the full amount.

The rule is expected to affect 50,000 people, who own a total of 180,000 homes. The value of the home will be determined by a government-certified assessor, based on home value data supplied by the Central Bureau of Statistics for each geographical area.

The hope among proponents of the law is that it will dampen the enthusiasm among investors for purchasing real estate, where much of the excess cash in the economy has sloughed off to, in the wake of near-zero bank interest rates.

Under the program discussed by the Committee, the tax incentives will be granted to those who have more than two properties registered in their name, and who sell the excess property to someone who does not currently own a home. The seller is not allowed to buy another property for five years, otherwise the incentives will be canceled and the discounted tax will be due. Sellers can qualify for the incentives three times.

An additional benefit will enable the seller to deposit profits from the sale in a retirement fund, further shielding the money from taxes, if the money is kept in the fund for at least five years or until the depositor hits the age of 60. The benefits will apply to owners who sell their excess properties by October 1st, 2017.