Betterment Tax (Mas Shevach)

If purchase tax is paid by the buyer, betterment tax is the other side of the coin — the tax paid by the seller on the gain made from selling a property.

Before any alarm sets in: most people selling their single residential apartment are entirely exempt from betterment tax. In other cases the calculation rules, and particularly the linear calculation for older properties, can reduce the tax dramatically.

This guide explains when betterment tax applies, who is exempt, how the gain is calculated, and why the date you bought the apartment matters so much.

Disclosure: This information is provided as an educational aid only and does not constitute tax advice. Betterment tax is a complex field with many exemptions and conditions — verify with the Tax Authority or a real estate lawyer or tax adviser before acting. Any action you take is your own responsibility.

What betterment tax is

Betterment tax (mas shevach mekarkein) is a tax on the gain, the shevach, arising from selling a right in real property. The gain is, simply, the difference between the sale price and the purchase price, less recognized expenses such as legal fees, agent fees, purchase tax already paid, and renovations.

The tax falls on the seller, and is collected only on realisation, at the point of sale.

The rate: 25% on the real gain, meaning the gain not attributable to inflation. High earners may pay an additional 5% surtax, up to a maximum of 30%.

The single residential apartment exemption

This is the most important point: a seller of a single residential apartment is entitled to a full exemption from betterment tax, subject to a value ceiling of 5,008,000 ₪ (2026) and to meeting the conditions, such as a minimum holding period.

In other words, most people selling the apartment they live in pay no betterment tax at all.

Above the ceiling, the excess portion may become taxable. Someone selling an apartment that is not their only one — a second property or an investment — is not entitled to this exemption, but may still benefit from the preferential linear calculation described below.

The preferential linear calculation — why the purchase date is critical

This is perhaps the mechanism that saves the most money, and many people have never heard of it. The 2014 reform established that apartments purchased before 1 January 2014 benefit from a preferential linear calculation: the gain accrued up to the end of 2013 is exempt from tax, and only the gain accrued from 2014 onward is taxable.

Example: an apartment bought in 2004 and sold in 2026. Of the 22 years of ownership, the first ten (2004–2013) are exempt, and twelve years (2014–2026) are taxable. Only about 55% of the gain is therefore taxable, and the rest is exempt. The earlier the apartment was bought, the greater the exempt share.

The implication: for owners of older properties, even those that are not a single residence, the effective tax is usually far below the headline 25%.

Deducting expenses reduces the taxable gain

The taxable gain is not simply sale price minus purchase price. Recognized expenses incurred by the seller may be deducted, including legal and agent fees on both the purchase and the sale, the purchase tax paid at acquisition, fees and levies, and substantial improvement or renovation costs — though not routine maintenance.

Keeping receipts across the years of ownership is worth real money at the moment of sale. Every documented expense reduces the tax.

Official tools and calculation

Because the calculation is complex — real gain, linearity, deductions — the Tax Authority operates an official betterment tax simulator.

Reporting is by self-assessment: the seller, usually through a lawyer, calculates and reports the tax within a defined period from the sale. In complex cases, engaging a lawyer or a real estate tax adviser almost always pays for itself.

Tax spreading and further reliefs

Additional tools exist for reducing the tax: spreading the tax across several tax years, which can lower the effective rate, particularly for those on low income; reliefs for pensioners and certain groups; and transfers without consideration between relatives.

Every relief is subject to conditions, and this is exactly where proper tax planning before the sale can save large sums.

Betterment tax versus purchase tax

Two taxes appearing in the same transaction but pointing in opposite directions. Purchase tax is paid by the buyer for acquiring the property — see the purchase tax guide. Betterment tax is paid by the seller on the gain from selling. In a single transaction, both parties may pay entirely different taxes to the Tax Authority.

Common mistakes

1. Not keeping receipts for expenses and improvements. Every undocumented expense is unnecessary tax.

2. Not checking eligibility for the single-residence exemption. Many qualify without realising it.

3. Ignoring the linear calculation for apartments bought before 2014 — a significant benefit.

4. Not considering tax spreading, which can lower the effective rate.

5. Selling without advice. In property transactions, a betterment tax error costs far more than the advice would have.

Summary

Betterment tax sounds threatening, but for most sellers of a single residential apartment it simply does not apply. Even where it does, the exemptions, the linear calculation and expense deductions usually bring it well below the headline 25%. The key is understanding your rights before the sale, and documenting expenses across all the years of ownership.

Before selling, calculate in the official simulator and consider advice. See also the other side of the transaction in the purchase tax guide, the overall guide to mortgages and buying a home, and the taxes section. We provide the knowledge — the decisions remain yours.