Tax on Israeli Rental Income

tax on Israeli rental income

With a growing shortage of homes in Israeli cities, the government introduced low tax rates for landlords on their Israeli rental income. This encourages them to rent out their apartments which may otherwise be left vacant. 

So, what are the tax rates on Israeli rental income?

Rental income in Israel is taxed at different rates depending on the type of rental income:

  1. Long term residential rental: A landlord can choose any of the following three tax routes:
    1. Marginal tax rates on the net rental income (after expenses
    2. Flat 10% tax on the gross rental income (before expenses)
    3. Tax exempt route on small income
  2. All other rental income will be taxed at the regular marginal tax rates.

1 – Marginal tax rates

The landlord will pay income tax at the standard marginal tax rates. So depending on their age, and their other incomes, the rate of tax could be fairly high. However, on this route, the tax payer has the ability to deduct all allowable expenses (agent fees, management, repairs, mortgage interest, depreciation etc…)

2 – Flat 10% tax on the gross rental income

The landlord will pay income tax at a flat rate of 10%. This seems pretty good! However, on this route the tax is charged on the gross rental income and it is not possible claim any expenses.

So, for example, if the tenant pays a total rent of ILS 120,000 per year, the landlord will need to pay (120,000 * 10%) ILS 12,000 of income tax on this income.

To be eligible for the 10% tax route, the circumstances must be as follows:

– An “individual” landlord rents a residential property
– To a tenant who is an “individual”
– For the use of residential purposes.

3 – Tax exempt route on rental income

An individual who rents residential property can receive an income tax exemption on this income if his total income from rent does not exceed ILS 5,654 per month as of 2024 (2023: ILS 5,471) and they meet the following requirements:

– The apartment is for residential use only and the landlord has a written a rental contract according to which the apartment is for residential use only.

– It is rented for personal use to tenants who are individuals (i.e., not a business)

– The property is structured to be used for residential purposes (for example, it is not a warehouse, or a store).

– Your total income from the rent is less than NIS 5,654 per month.

– If the landlord rents more than one apartment, provided that the total income from all apartments is less than NIS 5,654 per month.

What if the rental income is higher than the exempt amount?

If the amount of rental income is higher than NIS 5,654 but lower than NIS 11,308, a tax exemption will be granted for only part of the amount. However, for each shekel that the income exceeds the 5,654 threshold, the exemption is reduced by 1 shekel.

For example:
Monthly rental income of ILS 7,000:

First: calculate how much the income exceeds the ILS 5,654 threshold: (7,000 – 5,654 = 1,346).
Then: deduct that amount from 5,654 and you have your exempt amount: (5,654 – 1,346 = 4,308)
Exempt amount: ILS 4,308
Taxable amount: (7,000 – 4,308) ILS 2,692

So in this example, the monthly income of ILS 7,000 is split up and taxed as follows:
ILS 4,308 exempt
ILS 2,692 taxed at marginal rates

Read: All landlords to begin reporting Israeli rental income

Pay low tax on rental income

It is recommended to seek professional advice to calculate the best tax route for you. Whilst, sometimes the 10% route may seem to be the lowest tax rate and the most straight forward, it is worthwhile to check what expenses are allowable (for example depreciation) and the impact this has on the overall rate of tax.

Our firm specialises in the taxation of real estate. get in touch with us via the contact form below.

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Boruch Levenson
Boruch Levenson – CPA

A native English speaker qualified in both Israel and the UK, Boruch cares for  the English speaking clients.

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The information provided in this article is intended for general informational purposes only and should not be considered a substitute for personalized professional tax advice. Tax laws and regulations can be complex and vary depending on individual circumstances. We strongly recommend consulting with a qualified tax advisor to discuss your specific situation and ensure compliance with all applicable rules.

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