A donation of equipment, artwork, computers, or a capital asset can generate not only social value, but also a significant tax benefit – if the transaction is structured properly in advance
In recent years, more taxpayers have been considering donations that are not made in cash, but rather through assets, equipment, inventory, works of art, computers, and sometimes even real estate. From the donor’s perspective, this is often a way to contribute an asset with real value to a public purpose without necessarily incurring an immediate cash expense. From a tax law perspective, this is an area that requires caution, because the question is not only whether the donation qualifies for a tax credit, but also how the asset is classified, how its value is determined, and what the tax implications of the transfer itself may be.
The most up-to-date guidance issued by the Israel Tax Authority on tax credits for in-kind donations, dated March 21, 2024, clarified that where the donation in kind involves a capital asset, it may in appropriate cases be possible to benefit not only from the tax credit under Section 46 of the Income Tax Ordinance, but also from an exemption from capital gains tax or from Land Appreciation Tax, as applicable.
From our professional experience, the significance of this is substantial. Until recently, many assumed that if a taxpayer sought a tax exemption in respect of the transfer of the asset itself, that taxpayer could not also benefit from a tax credit under Section 46. The Israel Tax Authority clarified that, subject to compliance with the relevant provisions and the rules set out in the implementation guidance, it is possible to consider combining both layers: on the one hand, a tax credit for the value of the donation, and on the other hand, a tax exemption applicable to the transfer of the capital asset to the public institution.
What Is an In-Kind Donation?
An in-kind donation is a donation made not in cash, but through an asset or right with economic value. This may include computer equipment, furniture, a work of art, business inventory, real estate, and sometimes other assets as well, provided that it is a genuine donation made without consideration.
The basic principle is well established: a person who donates to a public fund or a public institution that has obtained approval under Section 46 of the Income Tax Ordinance may be entitled to a tax credit for that year. The credit rate for an individual is 35%, while for a company it is the corporate tax rate applicable in that year (as of 2026, the corporate tax rate is approximately 23%). Where the donation is made in kind, the value of the donation must be determined based on an appraiser’s valuation attached to the receipt, and the donor may not receive any consideration, right, or benefit in return for the donation.
Why Is This Important Now?
Its current importance stems from the fact that more asset owners are seeking to make donations in a planned, efficient, and commercially and tax-wise sound manner. In some cases, this involves a company owner holding equipment that is no longer needed. In other cases, it involves an individual seeking to donate artwork, real estate, or another asset to a public institution. In such cases, poor planning may lead a donor acting in good faith to miss part of the available tax benefit or create unnecessary reporting complexity.
The clarification issued by the Israel Tax Authority with respect to capital assets changes the way this issue should be approached. It requires an advance review not only of whether the recipient institution has approval under Section 46, but also whether the asset is a capital asset, whether the conditions for the exemption under Section 97(a)(4) of the Ordinance are met, and, if real estate is involved, whether Section 61(a) of the Real Estate Taxation Law should be considered.
What Does the ITA Actually Examine in an In-Kind Donation?
In practice, the review begins with a seemingly simple question: to whom was the donation made? The tax credit does not apply to every entity, but only to a public fund or public institution that has received the appropriate approval. Without such approval, the starting point is that no credit is available.
The next step is to examine the nature of the donation. The Israel Tax Authority expressly refers to in-kind donations, including works of art, equipment, computers, and real estate. However, recognition is not automatic. It must be confirmed that this is a genuine donation, that the donor did not receive any benefit in return, and that the value of the donation is supported by an appraiser’s valuation attached to the receipt. Another stage is reviewing the annual cap and the practical ability to utilize the tax credit.
The tax credit is subject to a minimum donation amount (₪207, as of 2026) and an annual cap, which is the lower of 30% of taxable income or a fixed maximum amount for that year (₪10,354,816, as of 2026)
Where a capital asset is involved, an additional important dimension arises: whether the transfer of the asset itself would have created a tax event absent the exemption. The Israel Tax Authority clarified that where the relevant conditions are met, the tax credit under Section 46 may be available even where an exemption from capital gains tax under Section 97(a)(4) of the Ordinance or an exemption from Land Appreciation Tax under Section 61(a) of the Real Estate Taxation Law is also claimed. This is one of the most important aspects of planning the transaction.
When Is It Possible to Benefit from Both a Tax Credit and a Tax Exemption?
The short answer is – not in every case, but certainly in some. All of the rules under Section 46, the rules applicable to in-kind donations, and the specific provisions granting the capital gains tax or Land Appreciation Tax exemption must be satisfied cumulatively. In other words, it is not enough that the donor gave up the asset for a good cause. A proper legal and tax structure is required, supported by appropriate documentation and an examination of the type of asset and the manner of transfer.
This is also where the identity of the donor becomes relevant. There can sometimes be a real difference between a donation made by an individual and one made by a company, due to the credit rate, the nature of the income, use of the annual cap, and other consequences arising from the way the asset is held. Therefore, before making the donation, it is important to consider whether it is preferable for the donation to be made by the individual directly or through a company owned by that individual.
How Do You Donate “Properly”?
The right approach starts with a preliminary review, not after the asset has already been transferred.
- It should be confirmed that the public institution in fact has valid approval under Section 46.
- The type of asset should be examined: whether it is inventory, equipment, a capital asset, or real estate.
- A supported value should be established through an appropriate appraisal.
- It should be examined who should make the donation – the individual or the company – while considering the effect of the annual cap, the credit rate, and the sources of income against which the benefit may be used.
The next step is to plan the reporting route. In some cases, it is appropriate to proceed by filing an annual tax return, and in others there may be room to consider additional options depending on the type of taxpayer. Where a capital asset is involved, it is particularly important to examine in advance whether the transaction also satisfies the conditions of the relevant exemption, so as not to discover after the fact that while the donation itself was recognized, the tax event arising from the transfer was not handled properly.
Illustrative Example: What Proper Planning of an In-Kind Donation Looks Like
Suppose an individual owns a work of art that is a capital asset, and its value according to an appraiser’s valuation is ₪100,000. The individual wishes to donate it to a public institution that has approval under Section 46. If the conditions of Section 46 are met and the annual credit cap allows it, the individual may be entitled to a tax credit at a rate of 35% of the value of the donation, subject to the limitations of the law. If, at the same time, the conditions for an exemption from capital gains tax in respect of the transfer itself are also met, the transaction may benefit from two separate tax benefits: both a tax credit for the value of the donation and an exemption from tax on the transfer of the asset.
*This is, of course, an example for illustration only, as the actual result depends on the type of asset, the donor’s status, the amount of taxable income, and the supporting documentation.
Conclusion: A Proper Donation Starts with Proper Planning
An in-kind donation can be a welcome step both publicly and economically, but it is not a technical process. Where a capital asset is involved, and sometimes real estate as well, it is important to examine not only eligibility for the tax credit under Section 46, but also the possibility of an exemption from capital gains tax or Land Appreciation Tax, and the correct way to structure the transaction from the outset. Early planning, full documentation, and a review of the donor’s identity and the type of asset can make a substantial difference to the outcome.
Nimrod Yaron & Co. specializes in Israeli and international taxation. Our team is made up of professionals with many years of experience at the Israel Tax Authority, together with experience at leading firms and law offices, and brings a combination of legal and economic perspective. We advise private and public companies, Israeli and foreign companies, global venture capital funds, as well as clients seeking focused advice in clear and practical language. We also work with a professional network of accounting and law firms around the world in order to provide a full-service solution in cross-border matters.
If you are considering an in-kind donation, a donation of a capital asset, or a donation of real estate, it is worth reviewing in advance the structure of the donation, eligibility for the tax credit, and the tax implications of the transfer itself. An early review may help you proceed correctly, reduce exposure, and understand the right path for your specific case.
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FAQ
Can a tax credit be claimed for a donation that is not made in cash?
Yes. Subject to certain conditions, an in-kind donation, such as equipment, artwork, computers, or real estate, may also qualify for a tax benefit.
Can both a tax credit under Section 46 and a tax exemption be obtained?
Sometimes yes. This depends on the type of asset, the identity of the donor, and whether the legal conditions for both the exemption and the tax credit are satisfied.
Is an appraisal required for an in-kind donation?
Usually yes. Where a donation is made in kind, it is important to establish a supported value and attach an appraiser’s valuation to the receipt.
When should legal or tax advice be sought before donating?
It is advisable to seek advice before making the donation, in order to review eligibility for the tax credit, the correct donation structure, tax implications, required documentation, and the reporting method.
