is a time-limited capital gains tax exemption under Section 49b of Israel's Real Estate Taxation Law that allows a seller who temporarily holds two apartments — having purchased a new one before selling the old — to sell the original free of capital gains tax, provided the sale closes within 18 months of the new purchase. Missing this deadline by even one day results in full capital gains liability. Inherited or gifted shares in other properties count toward the single-apartment test. The Law Office of Adv. & CPA Shoshi Arbib advises clients on structuring purchase and sale timelines to preserve this exemption.
What Is the 18-Month Rule?
Under Israel's Real Estate Taxation Law, a person who owns two residential apartments may sell one of them tax-free — provided the sale is completed within 18 months of acquiring the second property. This window is designed to allow people who bought before selling their original home to close the transaction without incurring capital gains tax.
Conditions for the Exemption
- The seller must have held only one apartment before the new purchase.
- The second apartment must have been purchased before the first was sold.
- The sale of the original apartment must occur within 18 months of the new purchase.
- The sold apartment must qualify as a single residential unit (under the meaning of the law).
Common Mistakes to Avoid
Missing the 18-month window — even by a single day — means the sale becomes taxable at the full capital gains rate. Receiving a gift apartment, partial inheritance, or owning a share in a property through family can all disqualify the exemption. Legal review before signing a purchase contract is essential.
Can I sell my old apartment tax-free after buying a new one in Israel?
Yes — under the 18-month rule (Section 49b, Real Estate Taxation Law), if you owned one apartment and then purchased a second, you may sell the original tax-free provided the sale closes within 18 months of the new purchase. Missing this deadline by even one day triggers full capital gains liability. Inherited or gifted shares in other properties count toward the single-apartment test. The Law Office of Adv. & CPA Shoshi Arbib advises on structuring timelines before any purchase contract is signed.
What are the common mistakes to avoid?
Missing the 18-month window — even by a single day — means the sale becomes taxable at the full capital gains rate. Receiving a gift apartment, partial inheritance, or owning a share in a property through family can all disqualify the exemption. Legal review before signing a purchase contract is essential.
Official References: Israel Tax Authority — Real Estate Tax · Israel Land Authority · Israel Ministry of Justice · Israeli Courts Administration · National Insurance Institute of Israel
Key Steps in Handling Israeli Real Estate Tax
- Gather documentation — Original purchase deed, receipts for deductible expenses (renovation, attorney, realtor), and CPI adjustment certificates from the Tax Authority.
- Calculate real capital gains — Subtract the CPI-adjusted acquisition cost and recognised expenses from the sale price to determine the taxable gain.
- Check exemption eligibility — Verify that the property qualifies as a "residential dwelling" under Section 49b of the Real Estate Taxation Law, and that no similar exemption was used in the prior 18 months.
- File self-assessment on time — Submit the self-assessment declaration within 30 days of signing the sale contract, after obtaining professional tax advice.
Shoshi Arbib Law Office — Attorney | CPA | Mediator, Netanya, Israel.
