Capital Gains Tax Exemption for a Sole Apartment: The Conditions and the 18-Month Period

The capital gains tax exemption for a sole apartment is granted under Section 49B(2) of the Land Taxation (Appreciation and Acquisition) Law, 5723-1963. It applies when the property being sold is the seller's only residential apartment in Israel and the Area, the seller held it for at least 18 months from the day it became a residential apartment, and the seller did not sell another apartment under this exemption in the 18 months preceding the sale. The exemption is capped at a value of NIS 5,008,000 — a ceiling frozen until December 31, 2027. Capital gains tax is payable on the portion exceeding the cap.

Section 49B(2) sets out three cumulative conditions. Before those, there is a threshold requirement: the property must be a "qualifying residential apartment," meaning an apartment whose construction has been completed and that was used primarily for residential purposes. According to the Israel Tax Authority's application form, an apartment in which more than 50% of the floor area is used for residential purposes qualifies. This track has been the primary one since Amendment 76, which took effect on January 1, 2014 and abolished the former exemption of one apartment every four years.

The Three Conditions

1. On the date of sale, the apartment is the seller's only residential apartment in Israel and the Area. The application form also requires details of the seller's spouse and unmarried children under 18, because the assessment is made at the family-unit level.

2. The seller held the interest in the apartment for at least 18 months from the day it became a residential apartment. For an apartment purchased from a developer, the relevant date is the day the apartment was fit for occupancy, not the date the contract was signed.

3. In the 18 months preceding the sale, the seller did not sell another residential apartment under an exemption pursuant to the same section.

Additional Apartments That Are Not Counted

According to the Israel Tax Authority's "Know Your Rights" guide and Land Taxation Execution Directive 2/2026, certain apartments do not disqualify the exemption even when they are registered in the seller's name:

• A replacement apartment purchased as a substitute for the apartment being sold. Under Section 49C(1), a person who purchased it from June 1, 2025 onward may sell the old apartment under the exemption provided the replacement was acquired up to 24 months before the sale. A person who purchased between June 1, 2023 and May 31, 2025 is limited to 18 months.

• A share in another apartment that does not exceed one-third, or one-half if the share was received by inheritance.

• An apartment that was leased under a protected tenancy before January 1, 1997.

• An apartment received by inheritance that meets the conditions of Section 49B(5).

Exemption Cap for a High-Value Apartment

The exemption is capped at a value of NIS 5,008,000. According to Land Taxation Execution Directive 1/2025, the cap will not be updated for tax years 2025 through 2027 and remains in effect until December 31, 2027. When the consideration exceeds the cap, the exemption applies up to the ceiling and the portion above it is subject to capital gains tax.

An apartment whose price is influenced by unused building rights receives a more limited exemption. Section 49Z limits the additional exemption attributable to the building rights to the value of the apartment or the difference between a cap of NIS 2,428,100 and the apartment's value, whichever is lower, and the total exemption may not be less than NIS 607,000. These amounts are also frozen, until January 15, 2028.

The exemption is not granted automatically. The seller must request it in a declaration filed with the Land Taxation Authority within 30 days of the date of sale, pursuant to Section 73(a) of the Law. If the conditions are not met, the tax is calculated under the standard rules of capital gains tax and purchase tax.

1. Before signing, verify how many apartments the family unit owns, the date on which the apartment being sold became a residential apartment, and whether an apartment was sold under an exemption in the last 18 months.

2. File a declaration. A qualifying residential apartment without building rights for which a full exemption is requested is reported on Form 7000. An apartment with unused building rights, or a sale partly exceeding the cap, is reported on Form 7002.

3. Attach Form 2988, the seller's declaration for exemption purposes. In it, the seller details family members, declares residency status and any additional apartments, and signs before an attorney who authenticates the signature.

4. Receive an assessment. According to the Israel Tax Authority, a joint online declaration by the seller and the buyer, accompanied by all supporting documents, can receive an assessment within one business day when the transaction involves the sale of a sole apartment under the exemption.

An Israeli resident declares on the form, among other things, that he or she will be present in Israel for more than 183 days in the year of sale and that his or her center of life is in Israel. A foreign resident may claim the exemption only if he or she does not own a residential apartment in the country of residence, and must attach a certificate to that effect.

For example: a couple lives in their only apartment, purchases a new apartment on September 1, 2025, and sells the old one on June 1, 2027. The new apartment was acquired as a replacement 21 months before the sale, within the 24-month period, so the old apartment is still considered a sole apartment for exemption purposes, subject to the remaining conditions.

These are the situations where it is worth pausing and double-checking before signing:

• Counting the 18 months from the date the contract with the developer was signed, instead of from the date the apartment was fit for occupancy.

• Checking only the seller's apartments, without accounting for apartments owned by the spouse and minor children.

• A second exempt sale before 18 months have passed since the previous exempt sale.

• Relying on a one-third share in another apartment twice. A seller who sold his or her primary apartment under the exemption by virtue of that share will not subsequently receive an exemption under Section 49B(2) on the sale of that same share.

• Missing the deadline for selling the old apartment after purchasing a replacement apartment. The Extension of Deadlines Law, published in the Official Gazette on March 26, 2026, extended some of the deadlines, and Land Taxation Execution Directive 2/2026 details the calculation. The exact date is determined according to the date of acquisition.

• Reporting an apartment with building rights as though it were a standard apartment, on Form 7000.

Real estate taxation matters at the firm are handled by Adv. Ariel Epstein, who trained at the Legal Bureau of the Customs and VAT Division of the Israel Tax Authority, and from 2021 to 2024 practiced as an attorney at a leading tax law firm.