Israel Offers Tax Break for Renting Out Homes of Elderly in Care Facilities
Israel has introduced a tax provision that allows individuals aged 65 and over, who move into a licensed nursing home, to rent out their former residence and receive a tax exemption on the rental income. This exemption is capped at half the annual cost of their care.
A nursing home, for the purpose of this law, is defined as a permanent residence for at least 30 individuals over 65, licensed under the Supervision of Nursing Homes Law. Families paying NIS 20,000 per month for care, totaling NIS 240,000 annually, can benefit from a tax exemption of up to NIS 120,000 on their rental income. This is significantly higher than the standard tax exemption for rental income, which is capped at NIS 5,654 per month or NIS 67,848 per year.
The tax benefit applies only to the home the parent occupied before moving to the care facility. Any other properties owned by the individual remain subject to standard tax regulations. For instance, a family owning two apartments would report each differently in their annual tax return.
The rental income generated can cover a portion of the care costs. For example, NIS 6,000 in monthly rent covers about one-third of a NIS 20,000 monthly care bill. The choice between the special exemption and the standard tax route depends on the monthly care cost. If the monthly care cost exceeds NIS 11,308 (NIS 135,696 annually), the special exemption under section 9(25) is more advantageous. Below this threshold, the standard route might be better, requiring an annual review of the tax situation as care costs or rental income fluctuate.
Documentation required to claim the exemption includes the rental contract, annual receipts from the nursing home detailing payments, and proof of the facility's license. The decision to move a parent to a more expensive facility can increase both the tax exemption on the rental income and the tax credit a child might claim for care expenses, though the overall out-of-pocket cost for the family will still be substantial.
