How many real estate transactions can a private individual conduct before the real estate taxation authorities define them as a “real estate dealer”?

This is a question I am frequently asked. In an era where real estate assets are considered a safe and profitable investment, many people who are not in the real estate business have started purchasing properties and engaging in transactions such as enhancement, sale, and purchase.

There is no definitive answer to this question. In the past, it was suggested that more than 10 real estate transactions might lead to a person being classified as a “real estate dealer,” but even lower numbers are considered.

Why is it important if a person is defined as a “real estate dealer”? The definition affects the tax rate. A private individual selling a real estate asset that is not exempt from capital gains tax pays 25% tax (for assets purchased after 2001). For residential apartments, one can benefit from a linear tax rate if the property was purchased before 2014.

If the tax authority decides that a private individual is a “real estate dealer” due to the frequency of transactions, they will be subject to a marginal tax rate of 42% and will also be required to pay VAT on the transaction.

Such a case was discussed in the Supreme Court, where a person who owned a fish marketing business and was not involved in real estate conducted more than 30 real estate transactions (sale, purchase, and combination transactions) over 25 years. The Supreme Court ruled by a majority that he was considered a “real estate dealer” for all intents and purposes.

We strongly recommend consulting before any real estate transaction, especially those with complex tax implications.