Israeli Tax on an Inheritance From the US: The Step-Up You Have to Ask For

This is orientation, not legal or tax advice. It maps what exists and the questions to take to a licensed professional. It does not tell you what to do about your own estate or taxes.

An American parent dies in New Jersey. The daughter made aliyah eleven years ago and lives in Modiin. The estate is a brokerage account, a house in the parent's name, and a small IRA. Her first question to an Israeli accountant is the obvious one: what does Israel take?

The answer is nothing, and the answer is misleading, and the gap between those two things is where the money goes.

Israel does not tax the inheritance. That part is true.

Israel had an estate tax from 1949, at rates reaching seventy percent, and repealed it with effect from 1 April 1981. Nothing has replaced it. There is no estate tax, no inheritance tax, and no death duty, and this holds regardless of whether the deceased or the heir was Israeli, American, resident, or neither.

Receiving an inheritance is not a taxable event in Israel. No filing is triggered by receipt alone. If the assets sit unsold and generate no income, there is generally nothing to report on that account.

That is the whole of the good news, and most English-language writing about Israeli inheritance stops there. It is also the reason people walk into the next part unprepared.

The continuity principle is what actually costs money

Israel does not tax the transfer. It taxes the eventual sale, and it calculates that sale as though you had owned the asset for as long as the person who died owned it.

Section 88 of the Income Tax Ordinance establishes what practitioners call the continuity, or tax-preservation, principle. When an asset passes by inheritance, the transfer is not a sale, so no gain is recognised. In exchange, the heir inherits the deceased's cost and the deceased's acquisition date. You step into their shoes. For Israeli real estate the same architecture appears in the Land Taxation Law of 1963: the transfer from estate to heir is exempt, and the heir takes the deceased's acquisition value and acquisition date for mas shevach purposes.

The consequence is arithmetic. If your father bought that stock in 1994 and you sell it in 2027 as an Israeli resident, Israel is looking at the gain from 1994, not the gain since he died. Thirty-three years of appreciation, taxed at Israel's capital gains rate for individuals, on a gain the American side of the file treats as though it never existed.

Why an American heir's instinct is precisely wrong here

This is the part that catches US-raised heirs, because the US rule is the opposite rule.

Under 26 USC 1014, property acquired from a decedent generally takes a basis equal to its fair market value at the date of death. The step-up is automatic, it requires no application, and it is so familiar to Americans that it functions as an assumption rather than a rule. An heir who sells shortly after death often has almost no US gain at all.

Israel grants no automatic equivalent. The instinct that death resets the clock is correct in the United States and wrong in Israel, and nothing about the Israeli process will tell you so. A brokerage transfer completes, the shares appear in an Israeli account, and the embedded gain travels with them silently.

There is a worse version. Where an heir cannot document what the deceased originally paid, and no arrangement has been reached with the Israeli Tax Authority, practitioners report the Authority taking the position that cost is nil, which puts the entire sale proceeds into the tax base rather than the gain. Decades-old US purchase records for an asset held by someone who has died are exactly the records families do not have.

The step-up you have to ask for

Here is the provision that changes the shape of the file, and it is a procedure rather than a statute.

The Israel Tax Authority operates green tracks, maslulim yerukim, for institutional rulings: standardised applications on set forms for questions the Authority answers often enough to have pre-agreed terms. One of those tracks addresses precisely this situation, an asset received by an Israeli resident from a non-resident by gift or inheritance. The application asks the Authority to treat the recipient as having acquired the asset at its market value on the date of receipt.

If granted, Israeli capital gains tax on a later sale runs only from the death, not from the deceased's original purchase. It is, in substance, the step-up an American heir assumed they already had. It is not automatic, the Authority does not volunteer it, and it is granted on conditions.

Four things practitioners consistently flag about it:

Timing matters and lateness is a documented ground for dispute. A request filed years after the inheritance is harder than one filed while the file is fresh. The window is practical rather than statutory, which makes it easy to lose without noticing.

Marketability matters. The Authority's reported position is not to approve a step-up for a non-marketable asset. Publicly traded US securities sit at the easy end. A closely held family company or an interest in a private partnership does not.

The new acquisition date can itself be disputed, as can the treatment of losses attaching to the transferred assets.

A contemporaneous valuation is the cheap insurance. An appraisal or a date-of-death statement obtained now costs very little. Reconstructing a value years later, for a probate that has closed, costs a great deal.

None of this is a matter for a US accountant. It is an Israeli filing, made by an Israeli representative, on an Israeli form, and it is one of the clearest cases on this site where the order in which you engage advisers determines the outcome.

Where the oleh exemption sits in this

If you made aliyah, there is a second system running alongside the first, and the two interact.

Sections 14 and 97 of the Income Tax Ordinance give a first-time Israeli resident, and a veteran returning resident, a ten-year exemption on foreign-source income and gains. For an oleh inside that window, a gain on a foreign asset may be exempt from Israeli tax entirely, which can make the continuity principle irrelevant. Sell inside the window and the question may never arise. Sell after it closes and the full pre-death appreciation is exposed.

That turns a tax question into a calendar question, and the calendar is unforgiving in both directions: selling early to catch the window can be the wrong answer if the US side of the same sale is expensive. We treat the mechanics of the window, including how the ten years are counted and where people get the start date wrong, in the oleh 10-year exemption and inherited US assets.

Whether an asset inherited after aliyah falls inside the exemption on the same terms as one you brought with you is a genuinely technical question, and it is the single most important thing to put to an Israeli adviser in writing rather than to infer from a general article. Do not assume either answer.

No Israeli tax does not mean no US tax

The absence of Israeli estate tax says nothing at all about the American side, and the American side is where an estate from the United States usually generates its bill.

If the person who died was a US citizen or US domiciliary, the US taxes their worldwide estate. For deaths after 31 December 2025 the basic exclusion amount under 26 USC 2010(c)(3) is a permanent base of 15 million dollars per person, set by section 70106 of the One Big Beautiful Bill Act. Most families are comfortably beneath it. State-level estate tax is a separate question with much lower thresholds.

If the person who died was not a US person, the exposure inverts and gets much sharper. A non-resident non-citizen decedent gets a unified credit of 13,000 dollars under 26 USC 2102(b)(1), equivalent to sheltering only 60,000 dollars of US-situs assets, and US-situs includes shares of US corporations held in any account anywhere. That trap is the subject of the 60,000 dollar trap, and it is the fact pattern most likely to surprise a mixed Israeli-American family.

There is no US-Israel estate or gift tax treaty. The two countries have an income tax convention, which matters for crediting Israeli tax against US tax on the same gain, but nothing coordinates the two estate tax systems. Relief on a sale generally runs through the foreign tax credit rather than through any treaty article on death.

The rest of the American picture depends on what you inherited. Retirement accounts follow their own distribution rules, covered in inheriting a US IRA or 401(k) as an Israeli resident. Moving an inherited account across the border has its own mechanics, in transferring an inherited US brokerage account to Israel. Real property is dealt with in inheriting a house in the US while living in Israel.

What Israel actually wants to hear about

Receipt of a foreign inheritance does not itself create an Israeli filing obligation where no income arises. Once the assets start producing income, or once you sell, that changes, and an oleh inside the exemption window has different reporting exposure from a long-standing resident.

Two practical points. Israeli banks apply their own anti-money-laundering scrutiny to inbound transfers from an estate, and they will ask for the succession or probate order, the death certificate, and a documented chain from the deceased to you, independent of anything the Tax Authority wants. That is a documentation problem, not a tax problem, and it stops transfers. Separately, a US person living in Israel still has the full US reporting apparatus to satisfy on the account itself, which is a different question from Israeli tax and is covered in FBAR and Form 8938 for an inherited account.

The order to do things in

1. Get a date-of-death valuation for every asset, now. This is the cheapest and most time-sensitive step in the entire file, and it is worth doing before you have decided anything else.
2. Establish the deceased's original cost and purchase date for each asset, from US brokerage statements, closing documents, or the estate's own records, while the US probate file is still open and someone can still retrieve them.
3. Fix your Israeli residency position and, if you are an oleh, the exact start and end of the ten-year window. Everything downstream turns on it.
4. Ask an Israeli tax adviser about the green-track step-up application specifically, by name. A general question about inheritance tax will get you the reassuring answer and nothing else.
5. Do not sell anything until both sides have been modelled together. The timing that minimises Israeli tax and the timing that minimises US tax are frequently not the same date.

Israel takes nothing when you inherit. What it does is hold the position open, and then tax the whole history when you sell. The step-up that closes that exposure exists, and it is one of the few things in cross-border estate work that gets materially harder the longer you wait.