Rental Income Tax in Israel

Renting out a residential apartment? That income must be reported, and is sometimes taxable — but there are three separate tracks, and choosing correctly can save you a great deal. This guide explains all three.

Disclosure: Educational information only. This is not tax advice. Amounts and conditions are updated regularly — verify with the Tax Authority or a tax adviser. Any action you take is your own responsibility.

The three taxation tracks

Income from renting out a residential apartment in Israel can be taxed under one of three tracks:

1. The exemption track

Residential rental income is exempt from tax up to a ceiling of 5,654 ₪ per month, correct for 2024–2026. If your monthly income falls below the ceiling there is no tax at all. Between 5,654 ₪ and 11,308 ₪ there is a partial exemption, which shrinks as income rises. Above 11,308 ₪ there is no exemption, and the entire income is taxable at marginal rates.

2. The 10% track

A flat 10% turnover tax on all rental income — with no ceiling, and no deduction of expenses. The advantage is simplicity and abbreviated reporting. It suits landlords with high rental income who do not want to track expenses.

3. The marginal bracket track

Income is taxed at the ordinary income tax brackets — see income tax — but you are permitted to deduct expenses: depreciation, mortgage interest on the property, repairs and more. This suits anyone carrying high costs on the property.

How to choose a track

Income below the ceiling of 5,654 ₪ → the exemption track, usually the best option.

High income, few expenses → the 10% track, simple and cheap.

High expenses on the property → the bracket track, where deducting costs may pay off.

The choice is made at the reporting stage, and it is worth calculating all three scenarios. Note carefully: failing to report rental income is an offence, even when no tax ends up being due.

Important points

Multiple apartments — the rules apply to total rental income, not to each property separately.

Non-residential property, meaning commercial, follows different taxation rules entirely.

Betterment tax on sale — when you eventually sell the property, betterment tax may apply to the gain.

Common mistakes

1. Not reporting — an offence, even where no tax is ultimately owed.

2. Choosing a track without calculating — sometimes the bracket track with expenses beats the flat 10%.

3. Forgetting future betterment tax on the eventual sale.

Summary

Rental income requires an informed choice between three tracks: exemption up to 5,654 ₪, a flat 10% of turnover, or marginal brackets with expense deductions. Calculate all three, and always report — even when no tax is due. See income tax, betterment tax and the taxes section. We provide the knowledge — the decisions remain yours.