US Estate Tax on Israeli Assets: A Guide for Americans

An American executor calls me after a parent dies in Tel Aviv, bracing for an Israeli inheritance tax bill on a NIS 4 million apartment. There is no such bill. Israel has not taxed inheritances since 1981. His relief lasts about a minute, until I explain that the tax questions in his case are almost entirely American ones, that one of them carries a 25% penalty if missed, and that the value he records today decides what he pays the IRS years from now when he sells.

That is the pattern with American heirs to Israeli assets. The country where the asset sits, Israel, takes nothing at death. The country where the heir lives, the United States, is where the real planning happens. A US citizen carries the US tax system on their back regardless of where they or the assets are located, and inheriting across the Israel-US line activates a specific set of rules that catch people who assume "no Israeli tax" means "nothing to do." This is the opposite of how most inheritances feel, and getting it wrong is expensive in a way that is entirely avoidable.

Israel Has No Estate or Inheritance Tax

Start with the good news, because it is genuine and it surprises almost every American family.

Israel repealed its Estate Duty Law in 1981. Since then there has been no Israeli estate tax, no inheritance tax, and no death duty of any kind. Whether you inherit a Jerusalem apartment, a Bank Leumi account, or a portfolio on the Tel Aviv Stock Exchange, the transfer to you as heir triggers no Israeli tax on the inheritance itself. The Israel Tax Authority is simply not a party to the death.

What Israel still requires is a legal mechanism to move the asset into your name. For an intestate estate that is a succession order (tzav yerusha); where there is a will it is a will execution order (tzav kiyum tzava'a). Both are obtained from the Inheritance Registrar (Rasham HaYerushot), and for a non-resident heir this is usually done remotely through an Israeli lawyer holding a power of attorney. The cost is administrative, not a tax.

In Practice: Under the Succession Law 1965, an heir abroad applies to the Inheritance Registrar (Rasham HaYerushot) at the Ministry of Justice for a succession order, with an application fee of roughly NIS 550 plus a publication fee of about NIS 130. An uncontested order on a clean file typically issues within 3–4 months. No Israeli estate tax is assessed at any point in this process, because none exists. A US heir can grant a power of attorney before a notary at home, apostille it, and never appear in Israel.

When US Estate Tax Reaches Israeli Assets

Here the question turns on a single fact: who died, and what was their relationship to the United States?

If the deceased was a US citizen or a US domiciliary, the US taxes their worldwide estate. Israeli real estate, Israeli bank balances, and Israeli securities are all folded into the gross estate under Sections 2031 and 2033 of the Internal Revenue Code, valued at the date of death, and measured against the federal exemption. For 2026 that exemption is $15 million per person under the One Big Beautiful Bill Act, indexed annually, with portability allowing a surviving spouse to inherit a deceased spouse's unused amount. Most families fall under it. Those who do not face federal estate tax at rates reaching 40% on the excess, and the Israeli assets count toward that total just as a Florida condo would.

If the deceased was a non-US person, an Israeli parent with no US ties, the analysis flips. The US taxes a nonresident, non-citizen decedent only on US-situs assets. Israeli real estate and Israeli accounts are not US-situs. They bear no US estate tax at all. The American inheriting them has, on the estate side, nothing to pay to anyone, Israeli or American.

That clean result has one string attached, and it is the string people trip over.

The Form 3520 Reporting Trap

Receiving an inheritance is not US taxable income. You do not report the value of an inherited apartment as income on your Form 1040. But a US person who receives more than $100,000 in a year from a nonresident alien individual or a foreign estate must file Form 3520 to disclose it.

There is no tax due with Form 3520 in this situation. It is pure information reporting. The danger is the penalty: failure to file a complete and timely Form 3520 for a large foreign gift or bequest can cost up to 25% of the amount received under Section 6039F of the Internal Revenue Code. An American who inherits a NIS 4 million apartment, roughly USD 1.1 million, and assumes that "Israel has no inheritance tax, so there is nothing to file" has just exposed themselves to a six-figure US penalty on a transfer that owed no tax at all.

If your inheritance also includes an Israeli bank or brokerage account that you now control, separate reporting wakes up: the FBAR and FATCA Form 8938 regimes for US persons holding Israeli accounts. These are annual, ongoing duties that begin the moment the account is yours.

Step-Up in Basis: The Number You Must Capture Now

Most American heirs focus entirely on the moment of inheritance and ignore the moment that actually generates US tax, which is the eventual sale. The bridge between them is your cost basis.

Under Section 1014 of the Internal Revenue Code, you generally take inherited property with a basis stepped up to its fair market value at the date of death. Inherit an apartment worth USD 1.1 million on the day your parent dies, sell it five years later for USD 1.3 million, and your US capital gain is measured from USD 1.1 million, not from what your parent paid decades ago. The step-up can wipe out an enormous latent gain.

The practical instruction is blunt: get an Israeli appraisal at the date of death and keep it. A shamai (licensed appraiser) report fixing the property's value at death is the document that supports your stepped-up basis to the IRS years later. Reconstructing a date-of-death value after the fact, from the other side of the world, is painful and weak as evidence.

In Practice: When you later sell, Israel applies a betterment levy (mas shevach) under the Real Estate Taxation Law 1963, filed with the Israel Tax Authority within 30 days of the sale, while the US taxes the gain from your Section 1014 stepped-up basis. On a NIS 4M apartment that rises to NIS 4.5M, the two systems start from different numbers, and the US foreign tax credit on Form 1116 relies on the Israeli levy being properly computed and paid first. A missing date-of-death appraisal can inflate your reported US gain by the entire pre-death appreciation, turning a modest tax into a large one.

How the Two Systems Fit Together on a Later Sale

When an American heir sells inherited Israeli real estate, both tax systems engage, and the order matters.

Israel taxes first, in time and in logic. The betterment levy under the Real Estate Taxation Law 1963 is an Israeli tax on the gain in the property's value, and as the country where the land sits, Israel has the primary right to tax it. You can read the mechanics in our guide to selling inherited Israeli property. The Israeli tax is computed, filed, and paid in Israel.

The United States then taxes the same sale, but measures the gain from your stepped-up basis, and grants a foreign tax credit on Form 1116 for the Israeli tax paid. The US-Israel tax treaty backstops this, allocating taxing rights and relieving double taxation. In a well-handled case, the Israeli levy and the US credit roughly cancel, and you do not pay twice. In a poorly documented one, mismatched values and timing leave gains exposed on both sides.

Common Mistake: Treating "Israel has no estate tax" as the end of the analysis. The estate side is clean, but the American heir who skips Form 3520 on a bequest over USD 100,000 risks a penalty of up to 25% under Section 6039F, and the heir who never captures a date-of-death appraisal can hand the IRS a far larger capital gain on the eventual sale. Both failures cost real money, and both are invisible at the moment of inheritance, which is exactly why they get missed.

Practical Checklist

• Confirm whether the deceased was a US citizen, US domiciliary, or non-US person, because it decides whether US estate tax touches the Israeli assets at all.
• For a US citizen or domiciliary decedent, value the Israeli assets at date of death and include them in the Form 706 worldwide estate, against the $15M 2026 exemption.
• If you receive more than USD 100,000 from a non-US person or foreign estate, file Form 3520 on time, even though no tax is due.
• Obtain an Israeli appraisal fixing date-of-death value, and keep it to support your Section 1014 stepped-up basis.
• Begin FBAR and Form 8938 reporting on any inherited Israeli accounts once they are in your control.
• Use an Israeli lawyer and a power of attorney to obtain the succession order remotely, without travelling to Israel.
• Coordinate the eventual sale so the Israeli betterment levy and the US foreign tax credit on Form 1116 line up.

Speak With an Israeli Attorney

Inheriting Israeli assets as an American is a tale of two tax systems: Israel asks nothing at death, while the United States asks for reporting now and tax on a future sale. The succession order, the date-of-death appraisal, and the coordination with your US advisors all happen in Israel, and a misstep on any of them surfaces years later as an IRS penalty or an inflated gain. An Israeli attorney can secure the succession order remotely, arrange a defensible date-of-death valuation, and work alongside your US accountant so the two systems meet cleanly.

Contact us for a confidential initial consultation.