The Law of Land Taxes allows for exemption from capital gains tax in the sale of an apartment that was gotten through inheritance. These exemptions can be obtained on three conditions: the seller is the spouse, child or the spouse of the child of the deceased; the deceased was the owner of only one apartment at the time of his demise and, if the deceased was still alive, then he would be entitled to an exemption from capital gains tax.
The following exemption was dealt with in a recent decision of the tax authorities. A man gave his child an apartment as a present before he died. At the time of his death he was left with one apartment which he bequeathed to his heirs. This apartment was sold by the heirs and they applied for the exemption from capital gains tax. Since the deceased would not have been entitled to the exemption from capital gains tax had he been alive, because the transfer as a present ate up his exemption which he was entitled to once every four years, the heirs were therefore not entitled to the exemption for the sale of the apartment that they inherited from him.
However the game was not up yet. In comes the temporary law enacted recently giving additional exemptions from capital gains tax for apartments up to 2,200,000 NIS . Since the deceased would have been entitled to the exemption from capital gains tax under this temporary law then his heirs were granted the exemption from capital gains tax for the sale of the apartment that they inherited from him as well. This decision expanded the possibility of additional exemptions from capital gains tax for heirs. However, this temporary law will expire on December 31, 2012.
