Capital gains tax is a tax imposed on the profit from the sale of a capital asset. A capital asset may include stocks, bonds, real estate, business interests, or other investments.
The tax applies only to the gain, meaning the difference between the sale price and the original purchase price (generally referred to as the basis).
If an asset is sold for less than its purchase price, a capital loss may occur instead.
Capital gains tax is triggered when an asset is sold or otherwise disposed of. The timing of the sale determines when the gain becomes taxable.
The amount of taxable gain generally depends on:
In many systems, gains are categorized based on how long the asset was held. Different holding periods may result in different tax treatment.
Capital gains tax can apply to various types of property. Common examples include:
Not all property is treated the same. Primary residences, for example, may qualify for exclusions under specific tax provisions.
Both the United States and Israel impose a capital gains tax. However, the rules are different.
In the United States, taxation depends on holding period, asset type, and taxpayer status. Certain gains may receive preferential treatment, while others are taxed as ordinary income.
In Israel, capital gains are generally taxed under separate provisions of the Income Tax Ordinance. Special rules may apply to securities, real estate, and business interests.
Since each country defines residency and sourcing differently, the same transaction may trigger tax obligations in both jurisdictions.
For Americans living in Israel, the capital gains tax can create cross-border exposure. The United States taxes citizens on worldwide income, including capital gains. Israel may also tax gains depending on residency and sourcing rules.
The U.S.–Israel Tax Treaty helps coordinate how gains are taxed and may provide relief mechanisms to prevent double taxation. However, treaty benefits do not eliminate reporting requirements.
Philip Stein & Associates assists clients in analyzing capital gains transactions under both U.S. and Israeli law. Contact our team to review how a planned sale may affect your tax position.