What Is the Surtax and How Does It Apply to Real Estate Gains
The surtax was first introduced in Israel in 2013, aimed at increasing the tax burden on high earners. In 2025, a significant reform added a 2% capital income surtax on top of the existing 3%.
This creates a two-layer tax structure: 3% on all taxable income above the threshold, and 2% exclusively on capital income above the same threshold.
- Until 2025: Capital gains from regular residential sales were not included in surtax calculations
- From 2025: A 2% capital income surtax was added
- From 2026: Investment property gains are now included – the key change
Who Will Really Be Affected in Gush Dan
The change primarily impacts investors holding a second property or more who plan to sell.
Example: An investor earning 600,000 NIS annually sells an investment apartment in Kiryat Ono with a gain of 800,000 NIS. Total income: 1,400,000 NIS. They could face an additional surtax of up to 5%.
- Owners of second property or more – primary affected group
- High annual income earners – increased exposure
- Sole residence owners selling with exemption – unaffected
- Housing upgraders – generally unaffected
5 Legal Strategies to Reduce Surtax Exposure
Tax planning is entirely legal and legitimate. Here are five strategies every Gush Dan investor should know.
- Split assessment between spouses
- Split sales across tax years
- Maximize recognized expenses
- One-third rule and family transfers
- Proper timing of sales
What This Means for the Gush Dan Real Estate Market in 2026
The surtax change is part of a broader government trend. Investor purchases already dropped 17% in 2025.
The change could create opportunities for buyers if investors rush to sell.
- 17% drop in investor purchases in 2025
- Potential opportunity for buyers
- Tightening tax environment
- Essential to calculate net returns after all taxes