Maximizing 2026 Tax Savings Through Year-End Capital Loss Offsets
Israeli investors realizing 2026 capital gains face critical year-end decisions regarding paper losses. Section 92 of the Income Tax Ordinance allows offsetting losses against gains, interest, and dividends to maximize tax refunds before December 31.
Investors who realized gains in 2026 while holding losing paper assets face a familiar year-end decision: whether to sell underperforming assets before December 31 or leave the losses unrealized. Section 92 of the Income Tax Ordinance stipulates that capital losses from securities sales during the tax year can be offset against capital gains realized within the same year.
The timing of the asset realization dictates whether the loss counts toward the current tax calculation. Unrealized losses carry no tax implications as long as the securities remain in the portfolio. Actual sales executed by December 31, 2026, generate current capital losses that directly offset that year's gains. Banks and brokerage firms automatically deduct a 25% tax on real gains from stocks, mutual funds, and tracking funds at the time of realization, calculating offsets within the same account at year-end. When gains and losses reside in separate accounts, consolidation requires filing an annual tax report with the Israel Tax Authority.
Practical Tax Savings and Calculations
An investor who realized a real gain of 40,000 shekels early in the year paid 10,000 shekels in tax at the 25% rate, while holding a security with a corresponding 40,000 shekel real loss. Realizing that loss before year-end reduces the taxable base to zero, allowing the previously withheld tax to be refunded either at year-end reconciliation or through a tax return. Delaying the realization leaves the 10,000 shekel tax liability intact while the loss remains idle.
Partial offsets operate under the same principle. A realized gain of 50,000 shekels incurs a 12,500 shekel tax obligation. Realizing a 20,000 shekel loss in the same year lowers taxable income to 30,000 shekels and reduces the tax bill to 7,500 shekels. The 5,000 shekel difference represents exactly a quarter of the realized loss. The rule of thumb remains straightforward: every shekel of capital loss offset against a 25% taxed gain saves a quarter-shekel in taxes.
Expanding Loss Offsets and Multi-Account Strategy
Section 92(a)(4) broadens loss utilization beyond direct capital gains. Current capital losses from securities sales can also be offset against interest or dividend income generated by the same security, as well as interest and dividends from other securities, provided the applicable individual tax rate does not exceed 25%. Standard dividends and corporate bond interest fall squarely within this category. However, substantial shareholder dividends taxed at 30% and bank deposit interest or savings plan returns remain excluded because they fall outside the securities classification.
Account fragmentation alters the final outcome. An investor registering an 80,000 shekel gain in one bank and a 60,000 shekel loss in another faces separate calculations: the profitable account incurs a 20,000 shekel tax, while the loss sits dormant elsewhere. Consolidating these accounts through an annual report reconciles the figures to a net taxable gain of 20,000 shekels, a 5,000 shekel tax liability, and a 15,000 shekel refund. Form 867 issued by each financial institution consolidates profits, losses, and withheld taxes to serve as the basis for the unified calculation.
Real Estate Appraisers and Foreign Assets
Capital loss offsets extend to real estate betterment tax under the Land Taxation Law, treating real estate gains and losses analogously to capital assets. Selling an apartment at a profit while realizing portfolio losses in the same year allows investors to merge these transactions in their annual report. For instance, a taxable betterment of 200,000 shekels offset against 80,000 shekels in security losses lowers the base to 120,000 shekels, saving 20,000 shekels in tax at the 25% rate.
Income Tax Circular 10/2025 clarified offset sequencing and the treatment of foreign-sourced losses. Losses from foreign assets are first offset against foreign capital gains before applying to domestic profits. Calculations for foreign securities are conducted in shekels, meaning exchange rate fluctuations directly impact realized gains or losses even if local currency prices remain stable. Furthermore, the Israel Tax Authority closely scrutinizes orchestrated sales followed by immediate repurchases as part of anti-avoidance audits targeting artificial transactions.
