New Tax Guidance Lets Freelancers Deduct Part of Their Rent

Israel’s Tax Authority has updated its guidance to allow self-employed workers who operate from home to deduct a portion of their rent as a business expense, something that had previously been blocked by legal and bureaucratic uncertainty. The change is being described as a practical correction for tens of thousands of freelancers who shifted from offices to home workspaces in recent years.

Under the new rules, the deductible amount is based on the share of the apartment used for business. If one room in a four-room apartment is used exclusively as a clinic, studio, or office, that room represents 25% of the home. In a example given, a renter paying 6,000 shekels a month could deduct 1,500 shekels monthly, or 18,000 shekels a year. That lowers taxable profit and can reduce income tax and National Insurance payments.

The article says many tenants fear that claiming rent as a business expense could hurt their landlords’ tax exemption on residential rentals, but the new circular was meant to resolve that concern. It states that using part of the home for work does not automatically cancel the landlord’s exemption, as long as the property remains mainly residential and the business use is reasonable.

The piece also lists three key limits: the space must be clearly and exclusively used for work, the lease should be properly registered and not ban home-based business activity, and the percentage claimed must be realistic. The article warns that overly aggressive claims, such as trying to deduct 50% of a three-room apartment, could trigger scrutiny. Readers are advised to review their lease and floor plan with an accountant before filing their annual report.