Capital Gains Tax Discounts and Purchase Tax Reductions in 2025 (Also for Investors)

Government Changes to the Real Estate Market Following the War

Due to the war and the challenging economic situation, the Israeli government implemented several measures in 2025 that impact the real estate market:
Real estate challenges expected in 2025.

1. Increase in Purchase Tax for Investors: The purchase tax on a second property or more remains high at 8%, aimed at reducing investor activity in the real estate market.
2. VAT Increase: The VAT rate was raised from 17% to 18%, contributing to higher prices for new apartments.
3. Cancellation of Planning and Building Reliefs: As of 2025, various planning and building easements have been revoked, potentially causing project delays and increased construction costs.
4. Shortage of Labor in the Construction Sector: The war caused a decline in the number of Palestinian construction workers, leading to rising labor costs and a slowdown in project execution.
5. Promotion of Urban Renewal in the Periphery: The government is advancing urban renewal and rebuilding projects, particularly in the south and north of the country, in areas affected by the war. This aims to improve infrastructure and provide safer housing for residents.

These steps are designed to address current economic and security challenges, but they also influence housing prices and supply in the real estate market.

Grants, Favorable Mortgage Rates, and Reforms in the Israel Land Authority

The Israeli government has implemented several measures in the areas of real estate, mortgages, and the Israel Land Authority to address the ongoing economic and security challenges:

• Grants for Homebuyers in the Periphery: As part of efforts to encourage settlement in peripheral regions, the government offers financial grants to homebuyers in these areas—especially in communities affected by the war.
• Increase in Mortgage Interest Rates: Due to the budget deficit caused by the war, it was decided to raise the VAT rate from 17% to 18% as of January 1, 2025. This move is expected to affect the cost of living and increase mortgage expenses.
• Reforms in the Israel Land Authority: The government is promoting reforms in the Israel Land Authority to streamline planning and construction processes, reduce bureaucracy, and accelerate land development—particularly in regions impacted by the war.

These measures are intended to tackle the current challenges in the real estate market, improve housing supply, and ease the burden on homebuyers, especially in peripheral areas.

Reduction in Purchase Tax on First and Second Homes

In addition to the grants offered to young couples, increased mortgage amounts, and reduced mortgage interest rates, a reduction in purchase tax on both first and second homes has also come into effect.

Until now, buyers of a second (or third and beyond) property were required to pay a \*\*purchase tax of 8% on properties valued up to 5,340,425 ILS, and 10% on properties priced above that threshold.

Now, however, the purchase tax rate for a second home has been significantly reduced to just **5%**, with no additional tax brackets.

In addition, the exemption threshold for purchase tax on first homes has been raised to approximately **1.7 million ILS, or more precisely, 1,744,505 ILS.

For example, in 2019, first-time homebuyers were exempt from purchase tax on property values up to 1,696,750 ILS. Now, the exemption applies to home values up to 1,744,505 ILS.

Another Opportunity to Reduce the Cost of Purchase

It’s important to understand that when it comes to purchase tax discounts, there’s a significant distinction between buyers purchasing a single home and those who already own an additional property.
In many cases, people own one property and sell it in order to purchase another.

In such situations, it’s crucial to be aware that if the buyer still owns a second property, they must sell it in order to benefit from the reduced purchase tax on the new home.
How soon must the second property be sold?
This is where a change has taken place: previously, the buyer had up to two years to sell the second property in order to qualify for the tax discount. As of now, this period has been shortened to just one year.

The implication of this change is that if you’re selling a second home, you should act quickly!
On the other hand, if you’re looking to buy a property, you might get lucky and encounter a seller under time pressure to close a deal — which could help you negotiate a lower purchase price.

Specific Cases Eligible for Reduced Purchase Tax

Not everyone is aware that the Israeli purchase tax regulations outline several specific cases that qualify for [**purchase tax reductions**](https://www.kolzchut.org.il/he/%D7%9E%D7%A1_%D7%A8%D7%9B%D7%99%D7%A9%D7%94#הנחות_לאנשים_עם_מוגבלות:~:text=%D7%94%D7%A0%D7%97%D7%95%D7%AA%20%D7%9C%D7%90%D7%A0%D7%A9%D7%99%D7%9D%20%D7%A2%D7%9D%20%D7%9E%D7%95%D7%92%D7%91%D7%9C%D7%95%D7%AA,%D7%91%D7%9E%D7%A1%20%D7%A8%D7%9B%D7%99%D7%A9%D7%94%20%D7%9C%D7%91%D7%9F%2F%D7%91%D7%AA%20%D7%A9%D7%9C%20%D7%94%D7%A8%D7%95%D7%92%20%D7%9E%D7%9C%D7%9B%D7%95%D7%AA), sometimes reducing the rate to as low as **50% of the standard amount**.

For example, when replacing a residential property, buyers are required to pay only 50% of the regular purchase tax—up to the value of the property being sold.

In addition, any residential property acquired within an urban renewal (“Pinui-Binui”) project, as compensation for a previous home in the same complex, qualifies for a full exemption from purchase tax.

Furthermore, new immigrants (olim), returning residents, bereaved families, and those officially recognized as victims of hostile actions are all entitled to significant reductions in purchase tax.

It is also important to know that people with disabilities are eligible for reduced purchase tax rates as well, based on their officially recognized level of disability.

The Forms You Need to Prepare to Minimize Purchase Tax Costs

When it comes to purchase tax rates, timing plays a crucial role. That’s why it’s highly recommended to prepare the relevant forms in advance and avoid delays that can lead to interest charges, linkage differentials, and fines.

By law, anyone purchasing a residential property is required to submit a declaration to the local Land Authority office within 30 days of the transaction, using Form 7002.
Other important forms you should download and keep on hand include Forms 7000, 7000A, and 7000B.

Planning to buy an apartment soon but haven’t gathered the necessary documents yet?

We’ve prepared a convenient ZIP file with all the required forms to save you time.
Don’t wait — download them today to avoid unnecessary delays and added costs!

Forms You Should Prepare to Minimize Purchase Tax Costs

When it comes to purchase tax rates, timing plays a critical role, so it is highly recommended to prepare all relevant forms in advance to avoid late payments—which can incur interest, linkage differentials, and fines.

By law, anyone purchasing a residential property is required to declare the transaction within 30 days to the local Israel Land Authority office using Form 7002.

Additional important forms that you should download and have ready include Forms 7000, 7000A, and 7000B.

Planning to buy a property soon and haven’t yet gathered the necessary paperwork?

We’ve compiled a ZIP file with all the required forms to save you time—so don’t wait, [download them today](https://www.myplace.co.il/wp-content/uploads/2020/09/טפסים-לצמצום-מס-רכישה.zip) to avoid delays and unnecessary extra charges on your purchase tax payments!

Forecast of a Moderate Decline in Housing Prices

Due to Israel’s high population density—especially in central residential areas like Tel Aviv—curbing the spread of COVID-19 has proven difficult, similar to other metropolitan regions around the world.

However, alongside this significant challenge, Israel also enjoys certain advantages, such as a relatively young population, which translates into lower average healthcare costs compared to other developed countries.

These characteristics have contributed to a gradual decline in housing prices over the past two months, amounting to 0.8%, according to the Housing Price Survey published by Israel’s Central Bureau of Statistics (CBS).

It is expected that the **drop in demand due to the COVID-19 crisis** will continue to **moderate housing prices** in the near future—making this period a **particularly favorable window of opportunity** to [**purchase a property in Tel Aviv**](https://www.myplace.co.il/%D7%93%D7%99%D7%A8%D7%95%D7%AA-%D7%9C%D7%9E%D7%9B%D7%99%D7%A8%D7%94-%D7%91%D7%AA%D7%9C-%D7%90%D7%91%D7%99%D7%91/#search-accommodations-sellmulti-select-label:~:text=%D7%97%D7%9C%D7%95%D7%A7%D7%94%20%D7%9C%D7%A4%D7%99%20%D7%90%D7%96%D7%95%D7%A8%D7%99%D7%9D) or elsewhere in the country.

In conclusion, despite—and even because of—the current uncertainty in the market, now is a smart time to purchase your first home, invest in a property, or sell an existing one, as the new government incentives make this a financially worthwhile move.

Interested in buying or selling a property? Call us today at 03-5251717, and our real estate experts at My Place will be happy to help you find the most suitable and profitable deal.