Betterment Tax Spreading & Refund
Sold an apartment or a right in real estate and paid betterment tax (mas shevach)? You may have paid more than the law requires. Spreading the gain over up to 4 years recalculates the tax by your personal tax brackets in each year, and usually reduces the liability - especially when your income in those years was low.
What is betterment tax spreading?
Section 48A(e)(1) of the Land Taxation Law (Betterment and Purchase) allows an individual seller who is an Israeli resident to ask that the real gain be divided over a period of up to 4 years back from the year of sale (or the ownership period - whichever is shorter). In each year, the gain portion joins that year's taxable income, and the tax is recalculated by your tax brackets and credit points in that year. If the spreading calculation is lower than what you paid - the difference is refunded with interest and indexation.
Who benefits most from spreading?
- Sellers whose taxable income was low in part of the spreading years (for example: studies, unemployment, maternity leave, opening a business or retirement).
- Sellers over 60 or with a disability, who are entitled to lower tax brackets.
- Spouses selling a jointly owned property - each can request spreading separately by their own data.
- Those who received the property by inheritance or gift - in many cases the spreading can also cover the ownership period of the deceased or the donor, up to 4 years.
How does it work with me?
Collecting the data
The land taxation assessment or Form 7000, purchase and sale dates, your taxable income in the spreading years and the number of credit points in each year.
Spreading simulation
A comparative calculation: regular betterment tax versus spread tax, including choosing the most worthwhile spreading years. If spreading does not pay off - you will be told explicitly.
Filing the request
Form 7003 - a request for betterment tax spreading, attached to the declaration on the sale of a right in real estate, with proof of income tax filings for the spreading years.
Completion and refund
If the year of sale was not yet included in the administrator's calculation - a temporary overpayment may occur. After the annual report for the sale year is filed, the final calculation is made and the difference is refunded with interest and indexation.
Betterment tax refunds even without spreading
Sometimes betterment tax is overpaid for other reasons: deductible expenses that were not deducted (renovations, fees, commissions), an exemption or relief that was not claimed, an assessment error or a cancelled transaction. The Tax Authority lets you check online whether a credit balance exists in your favor, and request the refund. This kind of review can also be done together.
Frequently asked questions on the subject: Q&A on betterment tax spreading and refunds