Can a non-resident offset capital losses against gains for Israeli tax?

Sell one Tel Aviv apartment at a loss and another at a gain in the same year and the Israel Tax Authority will not automatically net them for you. It collects the tax property by property, so the loss just sits there unless you go and claim it. The right to offset is real and generous; the catch is that a non-resident has to reach out and use it, because nobody applies it on your behalf.

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Detailed Explanation

The governing rule is Section 92 of the Income Tax Ordinance 1961. A capital loss realized in a tax year can be set off against capital gains realized that year, and, importantly, that includes a real-estate betterment gain (mas shevach) as well as gains on Israeli securities. A loss that cannot be fully used in the year it arises is carried forward without a time limit and set against capital gains in later years. So a securities loss can shelter a property gain, and a loss on one property can shelter a gain on another, provided the mechanics are followed.

For real estate the wrinkle is procedural. Betterment tax is self-assessed and effectively withheld transaction by transaction at the Real Estate Taxation office, so if you want to offset a loss, whether from securities or from another property, against a mas shevach gain, you have to file a claim with the Israel Tax Authority to do it. No system nets it in the background. A loss on the sale of a property is itself a capital loss you can deploy elsewhere. The starting point for what reduces a property gain in the first place is the note on deductible expenses for Israeli capital gains, and the tax itself is explained in the guide to the betterment levy and land appreciation tax.

The non-resident limits come from source rules. An Israeli-source capital loss offsets Israeli-source capital gains; you generally cannot import a loss made abroad to reduce an Israeli gain. Claiming the set-off usually means filing an Israeli return or opening a tax file, and because gains are computed in shekels, currency movement can widen or narrow the figure the offset applies to. Treaty relief in your home country works separately and does not replace the Israeli set-off. The practical discipline is to plan the timing of a loss-making sale against a gain, and to file for the offset rather than assume it happens.

In Practice: Under Section 92 of the Income Tax Ordinance 1961 a capital loss offsets same-year capital gains, including a mas shevach gain under the Real Estate Taxation Law 1963, with the unused balance carried forward indefinitely. A NIS 300,000 securities loss set against a NIS 300,000 property betterment gain saves roughly NIS 75,000 at the 25% rate, but the Israel Tax Authority applies it only when you file to claim it, and a refund of tax already withheld typically takes a few months to process after the return is submitted.

Key Considerations

• Section 92 lets a capital loss offset capital gains, including real-estate betterment gains and securities gains.
• Unused losses carry forward indefinitely against future capital gains.
• Betterment tax is collected per transaction, so you must file to apply a loss against a property gain.
• A non-resident offsets Israeli-source losses against Israeli-source gains, not foreign losses against Israeli gains.
• Gains and losses are computed in shekels, so currency movement affects the net figure.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You have a betterment tax already withheld on a property sale and a separate loss you want to reclaim it against.
• You are timing the sale of a loss-making asset to shelter a gain and need the order and filings right.
• Your losses arose partly abroad and you need the Israeli-source boundary drawn correctly.

A qualified Israeli attorney or tax adviser can file the set-off, reclaim over-withheld tax, and preserve carried-forward losses.

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Speak With an Israeli Attorney

We help non-residents claim capital-loss offsets against Israeli property and securities gains, reclaim betterment tax withheld in error, and keep carried-forward losses intact.

Contact us for a confidential initial consultation.