Is Capital Gains Tax Owed at the Point of Inheritance?
No — inheriting an apartment in Israel is not itself a taxable event for capital gains purposes. The Inheritance Law and the Real Estate Taxation Law together provide that heirs do not pay capital gains tax when they receive the property. However, a future sale of the inherited apartment is a separate matter.
Tax When Selling an Inherited Apartment
When an heir sells the inherited apartment, capital gains tax may apply. The calculation is unusual: the gain is measured from the original purchase price paid by the deceased (or their acquisition cost), adjusted for inflation, up to the sale price achieved by the heir. This means a long appreciation history can create a significant tax liability.
Available Exemptions for Heirs
An heir who inherits a single apartment and does not own any other property may qualify for the single-apartment capital gains exemption on eventual sale — the same exemption available to any other single-apartment owner. However, if the heir already owns another apartment, the inherited property becomes a second apartment and the exemption does not apply.
Does an heir pay capital gains tax when selling an inherited apartment in Israel?
Possibly yes. While inheriting the apartment itself is tax-free, selling an inherited apartment is a taxable event. The gain is calculated from the original purchase price of the deceased, not the inheritance date. If the heir owns only this one apartment, the single-apartment exemption may eliminate the tax — but this depends on the heir's full ownership picture at the time of sale.
