Lawyers
Taxation of real estate in cases of
Inheriting an apartment and receiving an inherited apartment
Interested in leaving an apartment to your children? There are several important questions that arise in this context, including whether this action involves a tax and what will happen if the inheritor wishes to sell the apartment in the future?
מאת עו״ד ונוטריון יגאל מור
דיוק בייעוץ המשפטי. מצויינות בליווי המשפטי.
The inheritance of an apartment is not taxable
As Israel does not have an estate tax, receiving an inheritance does not involve paying tax. There is a question arising as to whether the tax authorities will not also obligate the testator or heir to pay the tax on real estate such as an apartment. Generally, the sale of real estate is accompanied by the payment of appreciation tax to the seller and purchase tax to the buyer. According to the real estate taxation law, the inheritance of a right to real estate does not constitute a “transaction” under the law, and therefore it does not entail tax liability for the parties involved. But what about future transactions?
A deferred tax is a tax imposed on a future transaction
Consequently, we see that bequeathing an apartment and receiving an apartment as an inheritance do not constitute transactions under real estate law, and are therefore tax exempt. This does not, however, apply to future transactions relating to the same apartment. This means that if the heir sells the apartment he inherited, he will be subject to capital gains tax. Unless the heir qualifies for one of the appreciation tax exemptions. In light of this, it is in the best interest of the testator to consult an experienced real estate lawyer before bequeathing an apartment, who will evaluate the tax implications for the heirs and recommend the most appropriate course of action in order to save his heirs the burden of paying taxes as well.
Tax Exempt From Appreciation
As discussed above, an heir who wishes to sell an apartment he inherited is not automatically exempt from appreciation tax, since the exemption is granted for the act of inheritance itself and does not apply to future transactions. In many cases, the heir is also exempt from appreciation taxes. Why is this the case? Due to the fact that, among the many options available for exempting inherited residential apartments from appreciation tax, a separate exemption was provided for this purpose. The heir will be able to benefit from this exemption if three conditions are met:
- The seller is a spouse, a descendant of the testator, or a spouse of a descendant of the testator;
- It was the testator’s only residence before he died;
- If the testator were alive and selling the apartment, he would be entitled to exemption from appreciation tax.
