The Bottom Line: After 25 years in which the Property Tax rate stood at 0%, the Israeli Ministry of Finance has tabled one of the most significant changes to real estate taxation in decades. Under the draft Economic Efficiency Bill for 2026, the government proposes reinstating Property Tax at a rate of 1.5% of the land's value annually.
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The Implication: Holding land for investment, "banking" land for future generations, or sitting on under-developed plots is about to become significantly more expensive. The move aims to shift the tax burden from labor to capital and to incentivize construction on vacant plots.
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This article outlines the core of the reform, the new (and stricter) definition of "Vacant Land," and the aggressive reporting obligations imposed on property owners.
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Executive Summary: What Changes in 2026?

• The Tax Rate: An annual tax of 1.5% of the land's market value (effective Jan 1, 2026).
• Expanded Base: Land with existing structures may still be classified as "Vacant Land" if the built area utilizes less than 10% of the permitted building rights.
• Exemptions Slashed: Historic exemptions for agricultural land not actively cultivated and for long-term ownership have been abolished.
• Reporting Revolution: A shift to a digital "Self-Assessment" model. The taxpayer must initiate, value, and report.
• Sanctions: Heavy fines (up to 30% of the tax deficit) for non-reporting or under-reporting.
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1. The Core: Reinstating Property Tax at 1.5%

Starting in the 2026 tax year, "Vacant Land" (as newly defined) will be subject to an annual tax of 1.5% of its market value.
The Treasury's goal is twofold: to enrich the state coffers by approximately NIS 1.5 billion in 2026 (rising to NIS 9.5 billion by 2029), and to aggressively incentivize landowners to build or sell, thereby increasing the housing supply.
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2. The New Trap: What Defines "Vacant Land"?

The law does not stop at taxing empty lots. The most dramatic change lies in the definition of "Land" subject to tax.
Previously, land was considered "built" (and thus exempt from historic property tax) if a structure existed utilizing 30% or more of the permitted rights.
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The Proposed Amendment: The threshold drops to 10%.
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The Meaning: If you own a plot with an old, small structure that utilizes less than 10% of the permitted building rights (according to the approved Urban Plan/TAMA) – the asset will be classified for tax purposes as "Vacant Land" and will be taxed at full value (1.5% annually).
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3. Who is Exempt? (The Tax Floor)

The draft bill establishes a "Tax Floor" designed to protect owners of particularly low-value land. An exemption will be granted only if two cumulative conditions are met (Proposed Section 40):

1. The market value of the land does not exceed NIS 50,000 per dunam.
2. The value of all land holdings owned by the taxpayer does not exceed NIS 250,000.

Any deviation from these thresholds triggers tax liability from the first shekel.
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4. The Procedural Revolution: Self-Assessment & Online Reporting

Unlike in the past, the Tax Authority will not simply mail out payment vouchers. The law shifts full responsibility to the citizen, similar to the Purchase Tax/Appreciation Tax model:

• Duty to Declare: Landowners must file an online declaration ("Self-Assessment") by January 31st of each year.
• Valuation: The taxpayer is required to estimate the market value of the land independently and calculate the tax due.
• Audit: The Director of Real Estate Taxation has the authority to assess the land according to their "best judgment" if the declaration appears unreasonable.
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Warning: Failure to file or filing a deficient declaration ("Deficit") will trigger automatic fines of 15% to 30% of the missing tax amount.
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5. Transition Rules for 2026

The year 2026 is defined as a transition year with tight deadlines:

• Initial Declaration: Every landowner must file an initial declaration regarding asset details within 30 days of the law's commencement.
• Filing the Assessment: The Self-Assessment (valuation and tax calculation) must be filed within 90 days of the law's commencement.
• Payment: The tax for 2026 must be paid by December 31, 2026 (calculated pro-rata from the day the law enters into effect).
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Practical Takeaways for Landowners

1. Check Building Rights: If you own a property that is partially built (e.g., an old house on a large plot, an industrial warehouse with unused rights), you must immediately check if the existing structure exceeds 10% of the approved rights. If not – you are exposed to the tax.
2. Valuations: It is highly recommended to prepare a professional appraisal ("Shamai Mekerkein") to support the reported land value. Reporting an unrealistically low value without basis exposes you to deficiency fines.
3. Agricultural Land: Note the cancellation of the sweeping exemption. Agricultural land will be exempt only if it is actually used for agriculture according to law. Agricultural land held "for investment" that lies fallow will be taxed.
4. Re-evaluate Strategy: An annual tax of 1.5% is a heavy weight on yield. This is the time to consider whether to advance building permits (to exit the "Vacant Land" definition) or to sell the asset before the law comes into force.
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FAQ (Questions & Answers)

Q: Does this tax apply to residential apartments?
A: No. A built residential apartment is not considered "Vacant Land." The tax applies to empty plots or plots where the structure is negligible relative to the rights (less than 10%).

Q: I have agricultural land that I do not cultivate. Will I pay tax?
A: According to the proposed text – Yes. The exemption for agricultural land will apply only to land that is "actually used entirely for agriculture according to law."

Q: How am I supposed to know how much my land is worth?
A: The law places the responsibility on you ("Self-Assessment"). The Tax Authority plans to establish a computerized system for determining value, but until then – it is recommended to use a real estate appraiser to avoid disputes and penalties.
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Disclaimer: This article is based on a draft bill published for public comment and may change during the legislative process. It is recommended to consult with a lawyer specializing in real estate taxation for specific advice.

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