Have you inherited an apartment? Do you wish to sell the apartment while reducing capital gains tax payments to the necessary minimum? In order to reduce tax payments when selling an inherited apartment, you should be familiar with the various legal provisions, exemptions, and recommendations regarding the subject. The guide will review all the important legal provisions regarding inherited apartments
What Is an Inherited Apartment?
An inherited apartment is a property owned by a deceased individual and bequeathed to relatives through a will or inheritance. Upon inheritance, the property becomes part of the deceasedโs estate and is distributed among heirs according to the will or legal provisions. Each heirโs share is determined by law or the specifics of the will.
Does Inheritance Tax on Apartments Exist in Israel?
In Israel, there is no inheritance tax on properties. However, selling an inherited apartment may incur other taxes, such as appreciation tax. This tax applies to the profit from the sale of an apartment, calculated as the sale price minus expenses and inflation adjustments. The current appreciation tax rate in Israel is 25%, though historical rates were higher.
Appreciation for the sale of an inherited apartment:
The Real Estate Taxation Law mandates appreciation tax on the profit from apartment sales. However, exemptions exist for qualifying residential apartments. A property qualifies if it is the only residential apartment of the seller. Changes to the law in 2014 repealed certain exemptions, but exemptions prior to that date still apply linearly. For instance, appreciation accumulated until 2014 may be exempt, while any gains from 2014 onwards are taxable.
For inherited apartments, exemptions can apply under specific conditions. If the property was the testatorโs sole residential apartment, and the heir is a spouse, descendant, or the descendantโs spouse, the heir may be exempt from appreciation tax. However, exemptions do not apply if the testator owned additional apartments or bequeathed the property to someone outside the specified relationship categories.
Appreciation tax on the sale of an inherited apartment:.
If the testator has owned additional apartments – the heir will not be entitled to an exemption from the tax Capital gains tax on the sale of an inherited apartment. Therefore, an heir is entitled to an exemption from capital gains tax on the sale of an inherited apartment, provided that three conditions are met:
- The heir is the spouse, descendant, or the spouse of a descendant of the testator.
- The testator was the owner of only one residential apartment.
- The apartment was considered a qualifying residential apartment for the testator.
As long as these three aforementioned conditions are met, the seller will be entitled to an exemption from capital gains tax on an inherited residential apartment. If the conditions are not met, full exemption will not be granted. As described below, the heir may be entitled to a linear exemption from capital gains tax.
Calculating capital gains tax on the sale of an inherited apartment:
In the event that you have inherited an apartment โ โโit is highly recommended to sell it as early as possible, in order to benefit from the largest possible linear exemption period. The calculation method determines the more time passes until the sale of the apartment, the higher the sum will be paid in taxes. Let’s assume that the conditions for the exemption are not met. How will the capital gains tax be calculated on the sale of an inherited apartment?
In most cases, the capital gains are calculated based on the entire period in which the seller held the property. This means that if you purchased a property, for example, in 2015 and sold it in 2023, your capital gains will be calculated based on the increase in the value of the apartment during these years. When we are dealing with an inherited apartment, the starting date of capital gains will not be the date you received the apartment, but the date the testator purchased the apartment!
Linear exemption on the sale of an inherited apartment:
As a reminder, the conditions for exemption from capital gains tax for a residential apartment changed in 2014. So, what is the law for an inherited apartment, which until 2014 was eligible for exemption and is now not eligible? In these cases, a linear capital gains tax exemption will be applied to the sale of the inherited apartment. Meaning, thatseller will be exempt from capital gains tax from the date of purchase by the testator until 2014 and will be liable for capital gains tax from 2014 onwards.
This means that there is an advantage to selling the property early. The earlier the sale, the more significant the tax exemption will be. However, of course, this is an advantage from the perspective of tax payments only. If you expect a significant increase in value, or receiving a rental income from the property, etcโฆ it may be better to to absorb the extended tax payments.
Buying or selling an inherited apartment โ what should you be careful about?
Pay attention – it is not possible to make a transaction on a future inherited apartment, such a deal could make you lose your money!
If you know that a certain person is alive, it is impossible to make a deal with his heirs to sell the apartment after his death.
There are 3 basic rationales for this:
- The apartment has not yet passed into the possession of the heirs
- It is impossible to know who will be entitled to the inherited apartment
- There may be debts to creditors who are entitled to the apartment
In addition to all these examples – when selling an inherited apartment, there are many other reasons to consult a real estate lawyer, who can help draft a sales agreement that suits all parties.
Lawyer Osher Elkayim Office
Wish to sell the apartment you inherited? Want to benefit from the various exemptions from capital gains tax? Contact us at the Lawyer Osher Elkayim Office. Attorney Osher Elkayim is a lawyer and economist specializing in real estate law and taxation law. Our office will assist you throughout the process of selling the apartment, from professional and skilled representation in negotiations for its sale, to drafting contracts and reducing capital gains tax payments to the necessary minimum. Contact us – you will not regret it.
Disclaimer:
The information on this page and website is meant to only provide initial and basic information and does not/ will not constitute as legal advice and guidance or a substitute for individual legal advice provided by the firm. Nothing stated on this page can be constituted as guidance and/or recommendation and/or instructions for taking and/or avoiding taking various legal proceedings.
We recommend consulting with a professional attorney before taking any action. The responsibility for any result caused by the reliance of the information above shall apply solely to the user.
