Many of our clients find themselves in a common situation: they maintain savings accounts, investment portfolios, and retirement funds in the United States while living in Israel. Others have recently inherited money from parents or family members back in the US. When it comes time to consider moving these funds to Israel, we’re frequently asked about the tax implications and potential complications.

The good news? Simply transferring money from one country to another does not create a taxable event. This is one of the most common misconceptions we encounter. You have every right to maintain your funds in any country or banking institution you prefer, and the act of moving money between your own accounts across borders is not inherently taxable.

However, while the transfer itself may not trigger taxes, there are several important considerations that require careful planning and professional guidance.

Understanding the Tax Implications

Capital Gains Considerations

The primary tax concern arises not from transferring funds, but from selling assets to create those funds. If you need to liquidate stocks, bonds, or other investments to generate cash for transfer, this sale could trigger capital gains tax obligations.

US Tax Treatment:

• The United States maintains first right of taxation on real estate assets sold within the US
• Israel maintains first right of taxation on capital gains on securities (whether sold in the US or Israel)
• Federal long-term capital gains rates range from 0% to 20%, depending on your income level
• Short-term capital gains (assets held less than one year) are taxed at your ordinary marginal tax rate, which can be significantly higher
• Additional taxes may apply, including the Net Investment Income Tax (NIIT) and state-level capital gains taxes

Israeli Tax Obligations: If you’re an Israeli tax resident, you’ll need to report these transactions on your annual Tofes 1301 filing, particularly if you receive any taxable income from US sources.

The New Immigrant Tax Holiday Exception

Israeli new immigrants benefit from a significant tax advantage: the 10-year tax holiday on foreign-sourced income. During this period, capital gains from US assets may not be subject to Israeli taxation.

However, if you held assets beyond this 10-year period, calculating your Israeli tax liability becomes more complex. Multiple calculation methods may apply, and you’ll need to work closely with an Israeli CPA to determine the most favorable approach.

Income During the Tax Holiday Period

During the 10-year new immigrant tax holiday, most foreign-sourced income is exempt from Israeli taxation, including:

• Interest payments
• Dividend distributions
• Rental income from properties

While these income streams remain subject to US taxation, they benefit from the Israeli tax exemption during the holiday period. However, you’ll still need to report them to the IRS as a US taxpayer.

Gift Tax Considerations

If you’re considering gifting some of these transferred funds to your children or other family members, be aware of US gift tax reporting requirements. For 2025, any gifts exceeding the annual exclusion threshold of $19,000 per recipient (up from $18,000 in 2024) must be reported on Form 709. The IRS adjusts this threshold annually for inflation, so the amount you can gift tax-free typically increases each year.

While these gifts typically don’t result in actual tax liability due to the lifetime gift and estate tax exemption, the reporting requirement creates a permanent record-keeping obligation that can be onerous and lasts a lifetime. It’s important to note that the gift recipient (even if a US citizen) does not need to report the gift or pay any taxes on it – the reporting obligation falls solely on the gift giver. Proper documentation becomes crucial for both you and your recipients.

The Transfer Process: Compliance Requirements

Reporting Obligations

Before initiating any large transfers, ensure you’re prepared for the reporting requirements:

US Reporting:

• Capture your maximum foreign account balances for FBAR (Foreign Bank Account Report) filing requirements. Your balances obviously will increase after your transfer. Even if you spend these funds soon after the transfer, you’ll still need to report the maximum balances for the year.
• Determine if you need to file Form 8938 based on your total foreign financial assets. This is a supplemental form that is attached to your annual 1040 report.

Israeli Bank Requirements: For substantial transfers (generally amounts exceeding $10,000, though the exact threshold isn’t clearly defined), Israeli banks often require additional documentation. You may need to provide a statement from your tax accountant or attorney confirming that all related taxable income has been properly reported to both the IRS and Israeli Tax Authority. The bottom line is that your Israeli bank will decide if they will allow the transfer to be accepted or not. Speak to your banker and ask them exactly what documents they will require.

This verification process helps banks comply with anti-money laundering regulations and ensures proper tax compliance on both sides.

Currency Exchange Considerations: For large transactions, consider contacting specialized currency transfer companies rather than relying solely on traditional banks. These companies often offer significantly better exchange rates and lower fees, potentially saving you thousands of dollars on substantial transfers. It’s worth shopping around and comparing rates from multiple providers to ensure you’re getting the best deal possible.

Investment Warnings for US Citizens in Israel

If you’re planning to invest your transferred funds in Israel, proceed with extreme caution. US citizens should avoid popular Israeli investment vehicles such as:

• Keren Ne’emanut (Israeli mutual funds)
• Teudat Sal (Israeli exchange-traded certificates)
• Kupat Gemel (Israeli IRA type funds)

These investments often qualify as Passive Foreign Investment Companies (PFICs) under US tax law, subjecting them to Form 8621 reporting requirements and punitive tax treatment that can eliminate any investment gains.

Professional Guidance is Essential

The intersection of US and Israeli tax law creates a complex web of obligations and opportunities. What appears straightforward on the surface often involves nuanced planning considerations that can significantly impact your tax liability.

Before making any major financial moves, consult with tax professionals who specialize in US-Israel tax matters. The cost of professional advice is minimal compared to the potential tax consequences of poorly planned transfers or investments.

Key Takeaways:

• Moving money between countries doesn’t create taxes—selling assets to create that money might
• The US gets first crack at taxing gains from US assets
• Exception: Israel gets the first right of taxation on capital gains
• Israeli residents must report US-sourced income, with some exceptions for new immigrants
• Large transfers require additional documentation for Israeli banks
• US citizens should avoid most Israeli investment products due to PFIC complications

Remember: every situation is unique, and tax laws change frequently. This overview provides general guidance, but individual circumstances require personalized professional analysis.

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Disclaimer: This article is for educational purposes only and does not constitute legal, tax, or financial advice. The information provided is general in nature and may not apply to your specific circumstances. Tax laws and regulations are complex and subject to change. Before making any financial decisions or transfers, you should consult with qualified professionals including your banker, accountant, and attorney who can provide advice tailored to your individual situation. We strongly recommend seeking professional guidance to ensure compliance with all applicable laws and regulations in both the United States and Israel.