Israel Tax Authority Battles Landlords Amid Soaring Rent Prices
Translated & summarized from Ice by baba
Rental prices in Israel surged in September, with new tenants experiencing a 5.3% increase and lease renewals seeing a 2.4% rise. This occurs amid falling housing prices and is partly driven by higher mortgage interest rates for landlords. The Israel Tax Authority is trying to curb undeclared cash payments, a significant factor in rent hikes, especially in Tel Aviv. The current tax exemption ceiling for rental income is below the average market rent, leading to complex tax strategies and potential evasion.
The story in 5 lines · by baba
- New tenants faced a 5.3% rent increase in September, while lease renewals saw a 2.4% rise.
- Rising rents occur despite a 1.8% annual decrease in housing prices.
- High interest rates have increased landlords' mortgage payments, contributing to rent hikes.
- The Israel Tax Authority is battling undeclared cash payments in the rental market.
- The tax exemption ceiling for rental income is 5,674 shekels, below average market rent.
Rental prices in Israel continued to climb in September, with new tenants facing a 5.3% increase compared to a 2.4% rise for those renewing their leases. This disparity highlights what the article describes as a "cynical exploitation" by some landlords, particularly as the state offers fewer long-term rental projects. For instance, a landlord might increase rent by 120 shekels for an existing tenant, but find a new tenant willing to pay an additional 265 shekels.
This trend occurs despite a slowdown in the real estate market, where housing prices have fallen by 1.8% over the past year. The rising rents are attributed to high interest rates, which have increased landlords' mortgage payments since 2023. Even landlords without mortgages are leveraging the situation to raise rents.
A significant factor contributing to the rent hikes is undeclared cash payments, a phenomenon the Israel Tax Authority is attempting to combat. While the authority can reduce, it cannot eliminate this practice. If black market transactions were factored into official rent index changes, the actual rent increases would be higher. Some landlords may opt to keep rent increases off the contract and collect a portion in cash, thereby reducing their tax liability and potentially offering a smaller official rent increase.
The Tax Authority aims to increase reporting by requiring both landlords and tenants to declare payments, hoping to catch undeclared income and impose substantial fines. However, the current tax exemption ceiling for rental income is 5,674 shekels, which is below the average market rent. This ceiling has been frozen for 2024.
Landlords can choose between a full exemption (most common), a reduced tax rate of 10%, or paying taxes according to their marginal tax bracket. Many landlords prefer the exemption for peace of mind, fearing higher income could lead to greater tax burdens. The article notes that some landlords who rent out their only property may deduct their own rental expenses up to 7,500 shekels, sometimes paying the excess in cash to avoid tax authorities. Even the 10% tax option is sometimes circumvented, with landlords passing on higher costs to tenants, potentially with off-contract payments.
