Il Crypto Tax

Israel Cryptocurrency Tax Reporting Skill v1.0

General reference only. This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

Based on work by Skills IL, licensed under MIT. Adapted for the OpenAccountants format.

Section 1 — Quick reference

Conservative defaults

Section 2 — Legal framework

2.1 Core principles

• Cryptocurrency is classified as an asset (Neches) under Section 88 of the Income Tax Ordinance (Pekudat Mas Hachnasa — פקודת מס הכנסה), NOT as currency
• Gains are taxed as capital gains (Revach Hon) under Chapter E of the Ordinance
• ITA Circular 2018/05 provides primary guidance on crypto taxation
• Every disposal (sale, trade, conversion) is a taxable event valued in NIS
• Crypto-to-crypto swaps are taxable events — unlike some jurisdictions, Israel has always treated these as disposals

2.2 Business vs investment classification

If crypto activity constitutes a business (Esek — עסק), gains are taxed as ordinary income at marginal rates (up to 50%). Classification depends on:

• Frequency and volume of trading
• Whether taxpayer holds crypto as inventory vs investment
• Time and effort devoted to crypto activity
• Whether the taxpayer has another profession

When in doubt, treat as investment (25%) but flag for professional review.

Section 3 — FIFO cost basis method

Israel mandates FIFO (First In, First Out) for calculating cost basis unless the taxpayer can demonstrate a different method was consistently applied.

3.1 FIFO rules

1. Queue all purchases by date (oldest first)
2. For each sale, match against the oldest available purchase lots
3. Calculate gain/loss for each matched lot: (sale price − purchase price − fees) per unit
4. If a lot is partially consumed, the remainder stays in the queue
5. Sum all gains and losses for the tax year

3.2 Currency conversion

• All transactions must be converted to NIS at the Bank of Israel exchange rate (Sha'ar Yatzig — שער יציג) on the transaction date
• For crypto-to-crypto trades, the NIS value of BOTH sides must be determined at the time of trade
• For weekends/holidays when BOI doesn't publish rates, use the most recent business day rate

Section 4 — DeFi and special income classification

Classification notes

• Staking: ITA has not issued definitive guidance. Conservative approach treats rewards as income at receipt (market value), then capital gain/loss on subsequent sale
• Airdrops: Received tokens are income at market value on receipt date. Cost basis for future sale = market value at receipt
• Hard forks: New tokens have zero cost basis; entire sale proceeds are capital gain
• Stablecoins: USDT, USDC, DAI are still "asset" under Section 88. Every USDT-to-USDC swap, every conversion leg of a DeFi trade, every off-ramp to fiat is a taxable disposal

Section 5 — Loss offsetting rules

• Capital losses from crypto can offset capital gains from crypto in the same tax year
• Capital losses can offset gains from other assets (stocks, real estate) in the same year
• Capital losses carry forward to offset future capital gains under Section 92 (but cannot offset ordinary income)
• Losses from one spouse can offset gains of the other spouse if filing jointly
• Israel has no wash-sale rule — a taxpayer can sell in December at a loss and re-buy in January with the loss fully recognized

Section 6 — Reporting requirements

6.1 Annual reporting (Forms 1322 / 1325)

• Form 1322 (Nispach Gimel — נספח ג) — primary capital gains schedule attached to annual return
• Form 1325 (Nispach Gimel(1) — נספח ג(1)) — auxiliary detail form for securities/crypto where tax was not withheld at source

For each disposal, report:

1. Asset description (e.g., "Bitcoin (BTC)")
2. Date of acquisition (FIFO-determined)
3. Date of disposal
4. Acquisition cost (NIS)
5. Disposal proceeds (NIS)
6. Capital gain or loss (NIS)
7. Holding period

6.2 Advance payment (Form 1399י)

• File within 30 days of the capital gain event
• Transaction codes: 77 (sale) and 71 (virtual currency)
• Payment: 25% of gain for individuals (30% for significant shareholders)
• Advance payments are credited against annual tax liability
• Penalties for non-payment: interest (Ribit — ריבית) and CPI linkage (Hafreshei Hatzmada — הפרשי הצמדה)

6.3 Annual return obligation

Salaried individuals with crypto disposals must file Form 1301 even if they would otherwise be exempt. Any disposal generally triggers a filing obligation.

Filing deadlines (tax year 2025, filed in 2026):

• Online: June 30, 2026
• Paper: May 31, 2026
• CPA-represented: extensions available

Section 7 — Surtax on crypto gains (Mas Yesafim — מס יסף)

From 2026, capital income (including crypto gains) above NIS 721,560 is subject to:

• 3% base surtax on all income above the threshold
• Additional 2% on capital-source income above the same threshold
• Effective 5% surtax on crypto gains above NIS 721,560
• Threshold frozen through 2027

Section 8 — Voluntary disclosure (Nohal Gilui Mirtzon — נוהל גילוי מרצון)

The 2025–2026 Voluntary Disclosure Procedure expressly covers digital assets and grants criminal immunity.

Anonymity is no longer available — all applications filed with identifying details.

Section 9 — Special rules

9.1 Gifts and inheritance

Under Section 97(a)(5), gifts and inheritance use carryover basis — the recipient inherits the donor's original cost basis and acquisition date. Treating inherited crypto as zero-basis or fair-market-value at inheritance is incorrect.

9.2 Lost crypto

Crypto lost to exchange insolvency (FTX, Celsius pattern), theft, or lost private keys is recognized as a capital loss ONLY when the loss is final and documented (e.g., bankruptcy court order, police report). Do not write off frozen-but-not-bankrupt balances.

9.3 Inflation indexation

Section 91(b)(3) splits capital gain into a "real gain" (taxed at 25%) and an "inflation-component gain" (taxed at 0% for individuals on assets acquired after 1.1.1994). For long-held lots, a CPA should perform the manual indexation pass, which reduces effective tax.

Section 10 — Worked examples

Example 1 — Simple buy and sell

Scenario: Bought 0.5 BTC in January 2025 for NIS 80,000, sold in August 2025 for NIS 120,000.

Working:

• Capital gain: NIS 120,000 − NIS 80,000 = NIS 40,000
• Tax: NIS 40,000 × 25% = NIS 10,000
• Surtax: total income below NIS 721,560 → no surtax
• Advance payment: Form 1399י within 30 days of August sale → NIS 10,000
• Annual reporting: Forms 1325/1322 with 2025 Form 1301

Example 2 — Crypto-to-crypto with FIFO

Scenario: Bought 2 ETH at NIS 5,000 each (March 2024), 3 ETH at NIS 7,000 each (June 2024). In October, traded 3 ETH for 0.5 BTC when ETH = NIS 9,000.

Working:

• FIFO: consume Lot 1 (2 ETH @ NIS 5,000) then 1 ETH from Lot 2 (@ NIS 7,000)
• Lot 1 gain: 2 × (NIS 9,000 − NIS 5,000) = NIS 8,000
• Lot 2 partial gain: 1 × (NIS 9,000 − NIS 7,000) = NIS 2,000
• Total gain: NIS 10,000 → Tax: NIS 2,500
• New BTC cost basis: NIS 27,000 (3 × NIS 9,000)
• Remaining: 2 ETH at NIS 7,000 each

Example 3 — DeFi staking rewards

Scenario: Staked 10 ETH, earned 0.5 ETH in rewards (ETH = NIS 8,000 at receipt). Not sold.

Working:

• Conservative: NIS 4,000 taxable income at receipt (0.5 × NIS 8,000)
• Rate: 25% if passive income → NIS 1,000 tax; or marginal rates if ordinary income
• Cost basis for 0.5 reward ETH established at NIS 8,000/ETH
• The 10 staked ETH have not been disposed — no capital gain event on those
• Recommend professional consultation on staking classification

Section 11 — Common errors

Section 12 — Reference material

Section 13 — When to escalate to a professional

• Transaction volume exceeds 100 trades per year
• DeFi activities involve complex protocols (multi-chain, bridging, wrapping)
• Uncertainty whether activity constitutes business vs investment
• Total gains exceed NIS 500,000
• Tokens received from ICO, IEO, or similar offering
• Cross-border transactions with foreign tax obligations
• Voluntary disclosure consideration

Disclaimer

חשוב: כל המידע בקובץ זה מיועד למטרות מידע וחישוב בלבד. יש לבדוק כל עמדה מול רואה חשבון (Ro'eh Cheshbon) או יועץ מס (Yo'etz Mas) מוסמך לפני הגשה או פעולה.

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional — such as a רואה חשבון (Ro'eh Cheshbon — CPA) or יועץ מס (Yo'etz Mas — tax advisor) licensed in Israel — before filing or acting upon.

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Source: OpenAccountants — open tax Guides for AI, reviewed by named CPAs/CAs/EAs. Quality: source-cited draft. For always-current figures and named-accountant backing, connect the OpenAccountants MCP server (openaccountants-mcp).