Incurred capital losses in the stock market or asset sales? Do not ignore your losses — under Section 92 of the Israeli Income Tax Ordinance, a capital loss is a valuable tax asset that can recover tens of thousands of shekels in tax refunds.

Why is a Capital Loss a Valuable Tax Asset?

When you realize a loss on securities or real estate, that loss creates a statutory tax shield (Magen Mas). Every shekel of recognized loss offsets taxable profits, saving up to 25% capital gains tax.

What Can Be Offset Against What?

The rules governing capital loss offsets depend on whether the loss was realized in the current tax year or carried forward from previous tax years.

Capital Loss from Securities in the Sale Year - The Broadest Offset Scope:

  • Capital gains from other stocks, bonds, options, and mutual funds.
  • Corporate dividend income and interest from securities taxed at rates up to 25%.
  • Real estate capital gains (Mas Shevach) generated during the same tax year.

Unutilized Losses: Carrying Forward to Future Years

If capital losses exceed taxable profits in the current year, the remaining balance carries forward indefinitely to subsequent tax years.

However, There Are Two Critical Statutory Conditions:

  • An annual tax return (Form 1301) must be submitted for the year in which the loss was incurred, establishing the loss balance.
  • Carried-forward losses can only offset capital gains, not dividends or interest.

Offsetting Against Foreign Income & Foreign Tax Credits

Trading through international brokers or holding foreign stocks requires careful integration of foreign withholding tax credits under Section 126 alongside domestic loss offsets.

Common Pitfalls That Cost Investors Money

Failing to file Form 867 from multiple brokerages, overlooking real estate capital gains offsets, allowing loss certificates to expire, and neglecting spouse loss offsets.

Frequently Asked Questions About Capital Loss Offsetting

Can Stock Market Losses Offset Tax on My Employment Salary?

No. Under Section 92, capital losses cannot offset ordinary labor income; they offset capital gains, dividends, and interest.

I Suffered Losses This Year with Zero Capital Gains. Is My Loss Wasted?

No. By filing an annual tax return with Form 867, your loss carries forward to offset future capital gains.

I Have Accounts in Two Separate Banks - A Profit in One and a Loss in the Other. Is Offsetting Automatic?

No. Banks do not communicate. You must file an annual tax return to offset losses at Bank A against profits at Bank B to recover your 25% tax.

Do Losses on US Stocks Offset Capital Gains on Israeli Stocks?

Yes. Worldwide capital losses offset worldwide capital gains for Israeli tax residents.

I Paid Tax Abroad on a Capital Gain. Will I Be Taxed Again in Israel?

You can claim a foreign tax credit against your Israeli capital tax liability, preventing double taxation.

What is the Difference Between Stock Losses and Real Estate Losses?

Stock losses can offset real estate appreciation tax (Mas Shevach) in the year of sale; however, real estate losses are restricted under land taxation rules.

What Happens if I Failed to Report a Loss in the Year It Occurred?

You can submit retroactive tax returns for the past 6 tax years to claim and establish your carried-forward losses.

Should I Intentionally Sell Losing Stocks Before Year-End?

Tax-loss harvesting before December 31 is a proven strategy to offset realized gains and reduce tax liability.

Summary: Do Not Leave Money on the Table

Example: A loss of 20,000 ILS or 50,000 ILS can offset a gain of 80,000 ILS or 100,000 ILS, saving 5,000 ILS, 7,500 ILS, 12,500 ILS, or up to 30,000 ILS in capital gains tax under standard 23%, 24%, and 25% tax brackets. Contact Bernstein & Co. for comprehensive portfolio tax reviews.

Statutory provisions under Section 92, Section 94, Section 126, Form 867, standard brackets 23%, 24%, 25%, and model portfolios of 5,000 ILS, 7,500 ILS, 12,500 ILS, 20,000 ILS, 30,000 ILS, 50,000 ILS, 80,000 ILS, 100,000 ILS.