Selling an inherited apartment: Capital gains tax exemption up to 5,008,000 NIS

In Israel, there is no inheritance tax, but anyone selling an inherited apartment may find themselves liable for capital gains tax (mas shevach) on its appreciation, unless they meet the conditions for a specific exemption. This exemption differs fundamentally from standard tax breaks for single-apartment sellers, as eligibility is determined based on the status of the deceased rather than just the heir. Many heirs mistakenly believe this exemption is automatic, which is incorrect.

Eligibility Conditions

To qualify, the heir must be the spouse of the deceased, their descendant, or the spouse of a descendant. This definition excludes parents inheriting from their children or siblings inheriting from one another, even if they are first-degree relatives.

Another key condition is that the deceased must have owned only one residential apartment at the time of death. Even partial ownership of another property, however small, negates eligibility. The Tax Authority also applies a "theoretical test": would the deceased have been eligible for the exemption had they sold the apartment themselves while alive? Only if the answer is yes can the heir benefit from the exemption. This test prevents heirs from receiving greater tax benefits than the deceased would have been entitled to.

Ceilings and Limitations

The exemption ceiling for 2026 stands at 5,008,000 NIS of the sale value, within the brackets set for 2024–2027. Any amount exceeding this limit is subject to standard capital gains tax. If an heir does not meet the criteria for this specific exemption, they may explore other general tax breaks, such as the exemption for selling a single apartment. It is important to note that these exemptions are based on different conditions and cannot always be combined.

Procedures and Urban Renewal

The application for exemption must be submitted to the Tax Authority as part of the real estate sale declaration following the signing of the sale agreement. Required documents include a will and probate order, or an inheritance order if no will exists. For heirs involved in urban renewal projects (TAMA 38 or Pinui-Binui), eligibility for the exemption may be retained upon the sale of the new apartment, subject to individual review by the Tax Authority.

Questions and Answers

• Who is eligible? The spouse, descendant, or spouse of a descendant of the deceased, provided the deceased owned only one apartment.

• What if the deceased owned a part of another apartment? Even partial ownership negates eligibility for this specific exemption.

• What is the 2026 exemption ceiling? 5,008,000 NIS.

• What happens to the amount above the ceiling? It is subject to regular capital gains tax.

• Can this exemption be used more than once? Yes, it is not limited to a one-time use and is independent of other tax exemptions the heir may have used as a regular seller.