Section 85: The "Second Chance" for Tax Assessment Correction

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. It is highly recommended to consult with a specialized real estate tax attorney or a certified appraiser before executing any transaction.

Section 85 of the Real Estate Taxation Law serves as a "safety valve," allowing taxpayers to reopen and correct a closed tax assessment within 4 years of its finalization. While attorneys manage the procedural filing, the Certified Real Estate Appraiser is the critical figure who provides the economic evidence to justify a tax reduction.

Note: The ability to amend an assessment is not automatic and is subject to the discretion of the tax authority and statutory limitations.

1. Comparison: Purchase Tax vs. Appreciation Tax (Mas Shevach)

Feature	Purchase Tax (Mas Rechisha)	Appreciation Tax (Mas Shevach)
Focus	Reducing the acquisition value or changing classification.	Reducing the taxable profit ($25\%$ rate).
Timeline	4 years from the assessment date.	4 years from the assessment date.
The "Melchior" Rule	Highly relevant for construction delays.	Less common, usually fixed at sale.
Appraiser's Role	Market value disputes and "Shell" status.	Estimating renovations and splitting rights.
Strategic Risk	Moderate (values are usually transparent).	High (risk of re-evaluating the sale price).

2. Grounds for Reopening an Assessment (Section 85)

Under Section 85, an assessment can be amended if:

1. New facts are discovered that were unknown at the time of the assessment.

2. An incorrect declaration was made that affected the tax amount.

3. A technical or legal error is found in the assessment calculation.

3. The Appraiser’s Role in Section 85 Corrections

A. In Purchase Tax (Mas Rechisha)

• Challenging Market Value: If the Tax Authority sets a "market value" higher than the actual contract price, the appraiser provides a "Counter-Assessment" proving defects (e.g., structural issues, noise pollution) that justify the lower price as "fair market value."

• Splitting Residential vs. Building Rights: For houses on land, the appraiser proves that a larger portion of the price belongs to the dwelling (lower tax) rather than unutilized building rights (taxed at a flat 6%).

• Property Classification: Determining if a property was a "Residential Dwelling" (Ma'atefet/Shell) or "Land" on the day of the transaction.

B. In Appreciation Tax (Mas Shevach)

• Estimating Improvements without Receipts: If a property was renovated years ago but receipts were lost, a certified appraiser can perform a "Retrospective Valuation of Improvements." The Tax Authority might accepts this as a deductible expense to lower the taxable gain (depending on the circumstances).

• Splitting under Section 49z: In the sale of private homes, the appraiser fights to maximize the value attributed to the "Residential Unit" (which may be exempt) versus the "Building Rights" (which are fully taxable).

• Historical Base Value: Establishing the property's value at the time of an old inheritance or a purchase in the 1970s/80s to prevent paying tax on non-existent "inflationary" profits.

4. Timelines and the "Melchior Ruling"

The law mandates a 4-year limit. However, the Melchior Ruling (Appeals Committee 27213-02-19) established an important precedent under specific circumstances for "Improvement Dwellers" (those buying a new home before selling their old one):

• The Problem: If a developer delays delivery of a new home by 6 years, the 4-year window for a tax refund technically expires.

• The Ruling: The court determined that the 4-year clock only begins when the legal right to the refund matures (i.e., when the old house is finally sold), preventing taxpayers from being penalized for construction delays beyond their control.

5. Strategic Warning: The "Double-Edged Sword"

Reopening a tax assessment is an aggressive strategic move.

The Risk: When you file a request under Section 85 (e.g., to add 200,000 ILS in renovation expenses), the Tax Authority gains the right to re-examine the entire file. They may accept your renovation costs but simultaneously decide that your original sale price was undervalued, ultimately resulting in a higher tax bill than before.

Bottom Line:

A Section 85 request should only be filed after a "Feasibility Study" by an appraiser and a lawyer to ensure the potential savings significantly outweigh the risk of a counter-audit.

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