Cross-Border Real Estate Investment: Israel & U.S. Tax Considerations
Roth&Co was proud to co-host an informative webinar together with Arnon, Tadmor-Levy on February 24th, 2026 about cross-border real estate investment between Israel and the United States. The program was led by Chaya Siegfried, CPA, MST, Partner and head of International Tax Services at Roth&Co, together with Boaz Feinberg, Leading Partner at Arnon, Tadmor-Levy – one of Israel’s largest legal practices. Together they examined key cross-border real estate and residency issues, emphasizing strategies to prevent unintended tax exposure and structural inefficiencies. Click below to watch the webinar, or continue reading for a recap.
Key Takeaways
- Israel and the U.S. operate under fundamentally different tax systems.
- Cross-border coordination is essential – Israeli and U.S. advisors must communicate. Planning in isolation increases risk.
- Residence matters – understanding the residency rules and how they may impact the imposition of various transaction taxes can materially impact long-term returns.
- Planning must occur before acquisition. Once the purchase agreement is signed, flexibility may be limited.
Webinar Recap
Many of our U.S.-based clients approach Israeli real estate transactions with assumptions based on the US tax framework; but Israel has an entirely different tax regime.
Together, Boaz and I examined the tax rules governing cross-border real estate and residency, highlighting potential tax exposure, common structural inefficiencies, and strategies to avoid costly missteps. Below is a summary of the key points covered.
The Core Framework: Three Tax Events
Real estate taxation in Israel, as in most jurisdictions, can be understood through three primary taxable events: at purchase, during ownership (rental income), and at sale (capital gains). Each of these stages is governed by different tax rules, and importantly, those rules may apply differently depending on residency status and ownership structure.
Taxes at Purchase
Israel imposes a transfer tax at the time of purchase, which is calculated as a percentage of the property’s purchase price. The applicable rate depends on the classification of the buyer as foreign or domestic. For many foreign buyers, the purchase tax is a significant cost and should be considered early in the decision-making process.
VAT – Value Added Tax
In addition to the purchase tax, VAT may apply. A buyer is subject to VAT (current rate: 18%) if he purchases a property from a contractor or dealer. According to Israeli consumer law, the VAT is included in the property’s advertised purchase price. Note that the Purchase tax is paid on the full purchase price which includes VAT.
Other Transaction Fees
Other transaction fees include a broker’s fee – usually 1.5 to 2% plus VAT. This fee is usually paid by both buyer and seller. Lawyer’s fees commonly amount to .5 to 1% of the property’s purchase price, depending upon the complexity of the purchase.
Taxes on Rental Income
US citizens that generate rental income on their Israeli based real estate will be subject to tax in Israel and the U.S. on this income. Because the real estate is situated in Israel, Israel has the first right to tax that income. Any taxes paid in Israel should be available as a Foreign Tax Credit to offset their U.S. tax on that same income. If the income taxes paid in Israel are higher than the US taxes would be, the property owner should not have any incremental U.S. tax on that income once the Foreign Tax Credit is applied. Consequently, the property owner should only be taxed once on that income.
While there may not be any incremental taxes in the U.S., there are disclosure requirements that, if not met, could result in steep IRS penalties assessed to the U.S. taxpayer.
There are two primary methods for taxing residential rental income in Israel:
The choice of regime affects not only Israeli tax liability but also the availability and calculation of U.S. foreign tax credits, making cross-border modeling essential.
Sale of Property: Capital Gains and Withholding
Upon disposition of Israeli real estate, Israeli capital gains tax (referred to as appreciation tax) applies.
- For both commercial and residential property, a 25% appreciation tax applies on sale. Although, there can be a limited exemption for a single residential apartment if eligibility conditions are met.
- Non‑residents generally face the same capital gains tax rules but do not qualify for the standard residence exemption unless they meet specific tests.
- Special grandfathering rules may apply to certain older properties, and primary residence exemptions may eliminate or reduce Israeli capital gains tax if eligibility requirements are met.
Even if Israeli tax is reduced or eliminated, U.S. capital gains tax may still apply. Most property sales in Israel trigger capital gains tax at approximately 25%. The two systems do not always align. While a foreign tax credit may be available in the U.S. to offset the U.S. capital gains tax, the U.S. Net Investment Income Tax of 3.8% may still apply on the gain.
General Opportunities/ Advice
Following our discussion of the basic real estate tax framework, Boaz and I went on to discuss some common scenarios that we come across. Boaz shared the following advice:
- “Worst-case tax scenario,” when a foreign non-resident purchases real estate for mixed personal use and short-term rental. It is more tax efficient to avoid short-term rental activity to retain the passive income designation.
- Consider areas like Judea and Samaria for tax incentives. None of the Israeli taxes on purchase, rental or disposition apply to Area C properties owned by foreigners.
- Becoming an Israeli resident unlocks reduced transfer tax for first residence: Brackets start at 0% on first ~$600K (2M shekels), up to 10% only at ~$6M (20M shekels.
- New immigrant: Ultra-low tax if obtaining Aliyah visa/certificate and moving within 1 year (or 3 years for off-plan purchases from contractors). Can apply even for investment properties (recent change; no need to live there personally). Available for 7 years post-Aliyah, and not limited to first property.
- Gift funds to children who are already residents to buy property in their name (using their benefits) to reduce or eliminate Purchase Tax. Coordinate U.S.-Israel teams early to align on residency and double taxation treaty benefits (Israel taxes first on real estate income/gains, U.S. credits apply).
- Caution: U.S. citizens remain taxable worldwide; monitor for U.S. forms (e.g., FBAR, 8938) and potential conflicts.
- Rental income: Business treatment of multiple properties (10+ units) or active management—up to 52% tax. Withholding on dividends if through corporations (25% for individuals, 12.5% for corps).
- Complex structures (e.g., funds, loans) may trigger varying taxes (interest, dividends, capital gains at 25-30%).
What’s the final takeaway? “A potential buyer needs to consult with a team of practitioners familiar with US and Israeli tax law,” says Boaz Feinberg. “Each side must understand and communicate with the other to ensure the purchaser’s tax needs are properly aligned. Lastly, start planning early. In nearly every scenario we discussed, the most costly errors occurred when planning was done after purchase, rather than before.”
To learn more about cross-border transactions and their associated tax implications, please contact International Tax Partner Chaya Siegfried, CPA, MST at csiegfried@rothcocpa.com or engage@rothcocpa.com.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
