Mas Shevach / Israeli Real Estate Capital Gains Tax

Mas Shevach (מס שבח, literally 'betterment tax') is Israel's capital gains tax on real estate appreciation — the profit realized when a property is sold for more than it was purchased. It is administered by the Israel Tax Authority (Rashut HaMisbim) and is distinct from purchase tax (mas rechisha) paid by the buyer. Key parameters: (1) Standard rate: 25% on the nominal gain for properties purchased after January 1, 2014. Properties purchased before 2014 benefit from a linear reduction formula that blends the 0% pre-2014 rate with the 25% post-2014 rate, based on the proportion of ownership time before vs. after the cutoff date; (2) Primary residence exemption (Ptur Dira Yechida): an Israeli resident who owns only one apartment and has not claimed the exemption in the past 18 months may sell tax-free. This is the most commonly used exemption and a major driver of Israeli real estate transaction patterns — many sellers time sales to maximize exemption eligibility; (3) Inflation linkage: the 'betterment' is calculated on the real gain above the CPI-indexed acquisition cost, not the nominal gain — protecting sellers from being taxed on purely inflationary appreciation; (4) Deductible costs: selling costs (legal fees, brokerage), improvement costs (renovations with documented receipts), and mortgage arrangement costs reduce the taxable gain; (5) Installment sale rules: if a property is sold over multiple payments, the tax liability is apportioned accordingly. Mas Shevach interacts with purchase tax (Mas Rechisha, paid by buyers at 0–10% progressive rates) and Arnona (municipal property tax) — together these three taxes define the total Israeli real estate transaction cost structure.

An Israeli investor bought an apartment in Tel Aviv in 2018 for ₪2,000,000. In 2024 they sold it for ₪3,200,000, generating a nominal gain of ₪1,200,000. After CPI adjustment (cumulative inflation ~30% over the period), the inflation-adjusted acquisition cost is ₪2,600,000 — reducing the taxable gain to ₪600,000. Mas Shevach at 25% = ₪150,000. If this were their only apartment and they had not claimed the exemption in 18 months, the entire ₪600,000 real gain would be tax-free under Ptur Dira Yechida — saving ₪150,000.