Israeli Renters and Landlords Face New Tax Rules Amid Rising Summer Rental Demand
The summer months traditionally mark the peak rental season in Israel, with families, students, and those upgrading their housing moving in preparation for the new academic year. This year, the trend is intensified by a notable slowdown in new home sales and increased rental demand, pushing prices up. According to the Central Bureau of Statistics, rental prices for apartments with tenant turnover rose by an average of 6.6% compared to last year. However, this surge affects not only tenants but also landlords, who must navigate complex tax obligations with the Israel Tax Authority.
There are three main tax tracks for landlords: a full exemption for monthly rental income below 5,654 shekels, a partial exemption for income up to double that amount (11,308 shekels), and no exemption beyond that. Landlords can also opt for a reduced tax rate of 10% on rental income without deducting expenses, or pay according to personal income tax brackets starting at 31%, with deductions allowed for expenses and depreciation if over age 60. These rules apply only to residential rentals.
The exemption threshold is currently frozen following government austerity measures in early 2024, despite usual annual adjustments for inflation. If rental income exceeds the exemption limit but remains under double it, a partial exemption applies, reducing the exempt amount by the excess. Landlords who both rent out and rent a property themselves can deduct rent paid up to 7,500 shekels from rental income and pay 10% tax only on the difference.
Reporting requirements vary: landlords under the exemption track who meet criteria need not report rental income unless filing a tax return for other reasons. Those on the 10% tax track must report and pay by January 30 of the following year, while those paying according to personal tax brackets must file a full annual return. Failure to report can lead to fines and criminal charges, as the Tax Authority has enhanced enforcement using advanced technology.
Landlords with multiple properties can choose different tax tracks per property, but the exemption ceiling applies to total rental income. Those owning more than ten properties may be classified as running a business, requiring professional advice. Special tax relief exists for seniors over 65 moving to nursing homes, allowing exemption on rental income up to half their annual nursing home fees.
Tax track choice also impacts capital gains tax on future property sales. According to tax expert Attorney Hana Solomon of BDO, selecting the 10% or personal tax track allows depreciation deductions that increase taxable gains, while the exemption track’s treatment is currently under legal dispute but still results in depreciation deductions by the Tax Authority. This evolving legal context underscores the importance of landlords understanding their tax obligations amid rising rental market activity.
