A combination deal is one way of reducing one’s taxes on real estate transaction in some situations.
The meaning of a combination deal is when an owner of a land is selling to an entrepreneur (contractor), his entire land or a part of it in return for parts of a future structure (building) which will be built on the land.
The first step is having an incorporated company buying a land as a real estate union (according to the “Real estate law – capital gaining, selling and acquisition, a real estate union is a union that all of his assets directly or indirectly are real estate rights).
In the second step the company’s owner which is the land owner allocates shares of the company to the contractor who’s a limited company, to build on the land. The importance’s of these actions are two:
- The allocating of the shares from the real estate union to the contractor is tax exempt and a part to a form that needs to be filed to the capital gain tax authority is not subject to any report.
- Dividing profits as dividends between the union and the contractor are also tax exempt (article 126 to the income tax directive).
The third step is having both the contractor and the union to found a new incorporated company that its shares will be divided according to the agreement.
The last step is the selling of the apartments by the joint company and dividing the profits according to the will of the partners.