In Israel, just like the rest of the world, owners of real estate must pay property taxes, which are used to support city administrative activities such as garbage collection and maintenance of parks and roads.

Israeli property taxes are called “arnona,” an ancient Greek word which has been in the Hebrew lexicon for at least 2,000 years (see: Pesachim 6a and Sanhedrin 26a). This term should not be confused with the Jerusalem neighborhood Arnona, which received its name thanks to its great views: on a clear day, one can see the Arnon River in Jordan, which runs into the Dead Sea.

In the United States, property taxes are determined based on the property’s value. In Israel, however, arnona payments are based on the property’s size.

Determining the Size

Different cities use different methods to calculate the size of apartments. The computation methods range from the most conservative extreme of only including the apartment’s net usable space, all the way to the most far-reaching extreme of including not only the apartment and balcony space but also the unit’s portion of the common areas, including public stairwells and hallways, parking, storage, roof, garden, and even trash bin areas. (Don’t worry. Parking and storage space are taxed at a lower rate.)

Determining the Tax Rate

After determining an apartment’s taxable size—based on the city’s arnona calculation method—the next step is to determine the arnona rate on a per square meter basis. Each city has a different tax rate, and the rates fluctuate greatly; for example, Beit Shemesh’s tax rate is about half of Jerusalem’s rate. Some cities have multiple districts, each with its own tax rate. In addition, many cities have different tax rates based on the size of the apartment. In Jerusalem there is one rate for units below 120 square meters (sqm) and a higher rate for units that are above 120 sqm.

To make matters even more complicated, in Jerusalem, different building types have different tax rates. An example: the tax rate in a stucco-faced shikun building is lower than in a stone-faced building. One last, and compassionate, twist—discounts are available to various residents, including senior citizens, people with health-related issues or special needs, and indigent families.

Future Changes?

Jerusalem has historically used the most conservative measuring approach of only including net usable space; however, there is currently a movement to expand the calculation method to include the apartments’ internal and external walls. Although this proposal is facing considerable resistance, there is a chance that this broader calculation method will pass, as it will fill the city’s coffers in multiple ways. First, the average apartment will suddenly grow by about 10 percent, thereby increasing taxes by 10 percent. In addition, many apartments are currently just below the 120 sqm threshold and going above will raise the unit’s tax rate by about 20 percent.

Thank you to my chavruta Peretz Silverman, who—while researching his own tax bill—generously agreed to research and co-write this article.

Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at [email protected].