Set up a residential apartment
- Buying an apartment in Israel
Here is the place to define what a residential apartment is for billing purposes in real estate taxation. The Real Estate Taxation Law defines in section 1: “‘Residential dwelling’ – a dwelling or part of a dwelling, the construction of which has been completed and is owned or leased by an individual.
“Except for an apartment that constitutes business inventory for income tax purposes.”
This definition is not very successful and poses many challenges for the tax authorities regarding the test of the ‘use’ of a property as a residence.
For this reason, according to the implementing instructions in the Appreciation Tax Code, this definition was given an interpretation that on a daily basis, an asset that can generally be lived in and includes the basic characteristics required for an apartment, i.e., bathroom, kitchen and living room of the apartment as an objective tool to determine the type of apartment.
The problematic nature of setting up a residential apartment has diminished over the years. Because while in the past every residential apartment was exempt from appreciation tax subject to the exemption maximum, today there are few exemptions for those who sell a residential apartment.
Also, from here it’s understood why the condition in defining a residential apartment is that its construction has been completed.
Because beyond the physical elements in the apartment it is necessary for the apartment to be connected to electricity and water.
At the same time, an apartment whose owner refrains from connecting it to electricity and water will still be considered a residential apartment.
On the negative side, it can be said that a residential apartment loses its character as such if it ceases to be intended for residential use by nature, or when it becomes a business inventory, or when the above-mentioned characteristics are removed from it and more.
A residential apartment that is rented to a ‘business’ will be considered a residential apartment, subject to exceptions.