According to a bill memorandum released last week by the Ministry of Finance, the period during which homeowners upgrading their residence can own two homes simultaneously without being classified as investors for tax purposes will be shortened from 24 months to just 18. This is the same timeframe currently in place under a temporary directive, and the new proposal seeks to make it permanent. “A large stock of ‘homes in limbo’ reduces the supply of available housing on the market and drives up home prices,” the ministry stated.

By Nimrod Buso, Nadlan Center

A bill memorandum released last week for public comment by Israel’s Ministry of Finance proposes shortening the amount of time homeowners upgrading their residence can legally own two homes without being considered investors—from two years to 18 months. The policy aims to encourage homeowners to release their first homes back onto the market, increasing the overall housing supply. While the 18-month limit for holding two properties is already in effect under a temporary directive introduced two years ago, it is set to expire on June 1—just a few weeks away. The current legislation aims to make this shorter timeframe a permanent part of the law, rather than a temporary measure.

The explanatory notes of the proposal state that the Real Estate Taxation Law “sets the period during which homeowners upgrading their residence can own two homes simultaneously while still being treated as owners of a single home (prior to selling their old one) for the purpose of determining the purchase tax rate they owe. As the law currently stands, this period is 24 months.”

In May 2023, the first legislative step was taken to reduce this period to 18 months via a temporary directive, scheduled to expire on June 1, 2025. Once it expires, the period will automatically revert to the original 24 months unless a new law is passed.

The notes further explain that “allowing homeowners to benefit from the tax advantages of owning a single home while they actually own two homes for an extended period encourages them to delay selling their first property in hopes of rising prices. This leaves many ‘homes in limbo,’ reducing the supply of available housing and driving up prices. Additionally, these homeowners typically belong to high-income households, earning on average about twice as much as the average Israeli household.”

As a result, the extended period currently allowed by law for owning two homes while still receiving tax benefits meant for single-home owners ends up favoring high-income households, while making it harder for young couples to enter the market, as “homes in limbo” drive prices even higher.

That’s why the Finance Ministry is now pushing to make the shorter 18-month limit part of permanent legislation. Under the proposed change, homeowners upgrading their residence would need to sell their previous home within 18 months to qualify for reduced purchase tax and capital gains benefits.