In this blog we’ll get into the implications of selling a house in Israel as a US Citizen. What is the possible impact on your finances, taxes, etc.?
We’re about to get into that – but first, I’ve written these blogs about moving to and living in Israel which you may enjoy as well:
Checklist for moving to Israel
Financial planning for US citizens living abroad
What are the potential tax implications of selling a house in Israel?
There is Israeli real estate capital gains tax to pay (called “Mas Shevach”). This may not be that much, as the original purchase price may be adjusted for inflation and capital improvements.
Let’s look at an example of what happens when selling a home in Israel. An American couple came to me recently. They had moved to Israel over 40 years ago, and purchased a house for about $200,000. They now want to sell. They received an offer for $2,000,000 in Israeli shekels equivalent, or ten times their purchase price.
Let’s assume that Israeli taxes are zero.
From a US perspective, taxes are due on the capital gain (after subtracting any Israeli taxes). There is a $500,000 exemption for a married couple if it is their primary residence, (or if it was their primary residence for two of the past five years), which moves the cost basis to $700,000. Taxes would be due on $1.3 million in the US. The exemption for a single person is $250,000, making taxes due on $1.55 million.
A few other facts to consider:
- Inflation is not taken into account.
- Whereas in the US one can do a tax-free 1031 exchange if a similar asset is purchased within six months, this option is not offered overseas easily (there are some exceptions from what we understand, but this is beyond the scope of this blog)
For all of these reasons, a US citizen who holds an overseas property in a rising market for many years could be at a disadvantage versus owners of real estate located in the US.
What US expats should do before a home sale
What should a US expat do if you are considering selling a home in Israel?
- First, it’s very important to keep receipts over the years of any improvements made to the property, as this increases the cost basis.
- Secondly, consult with a US CPA, who is well versed in these issues. Some but not all CPAs believe there is relief under a section in the US-Israel tax treaty. We would be happy to refer you – please kindly contact us if you would like some names.
Final thoughts on selling a house in Israel
We hope you have enjoyed our article on selling a house in Israel as a US expat.
We are expat financial advisors located in Israel and the US, serving expats globally. If you are moving to Israel or another country and don’t know where to start when it comes to the financial side of things, please contact us.
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Norman H. Chait, CFA, Managing Principal, Nardis Advisors LLC, August 31, 2022.
Disclaimer: Nardis Advisors LLC (“Nardis”) is a Registered Investment Advisory Firm regulated by the U.S Securities and Exchange Commission in accordance and compliance with applicable securities laws and regulations. Nardis does not render or offer to render personalized investment advice through this medium. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and Nardis.
