If you are renting out a property, that rising income comes with a tax question worth understanding.

The Three Tax Tracks

There are three ways to handle rental income in Israel, and choosing the right one matters.

The first and most popular is the exemption track. If your monthly rental income is below NIS 5,654, you pay no tax and in most cases do not even need to report it. There is also a partial exemption for those earning up to NIS 11,308 per month. Above that figure there is no exemption at all.

The second option is the 10% flat tax track. You pay a fixed 10% from the first shekel with no ability to deduct expenses for repairs or maintenance.

The third is the standard marginal tax track, where rental income is added to your total income and taxed at your personal rate, starting at 31% unless you are over 60. This track does allow you to deduct expenses including repairs, interest, professional fees and depreciation.

One important note: if the property is rented for business use rather than residential, different rules apply entirely and you must open a tax file regardless of the amount.

What If Your Rent Is Between the Two Thresholds?

If your monthly rent is above NIS 5,654 but below NIS 11,308, you qualify for a partial exemption. For every shekel above the threshold, your exemption shrinks by one shekel. For example, if you rent for NIS 7,000 per month, you exceeded the threshold by NIS 1,346, so your exemption drops to NIS 4,308. You pay tax only on the remaining NIS 2,692.

Renting Out and Renting at the Same Time?

If you own one apartment, rent it out, and rent somewhere else to live yourself, there is a mechanism designed for you. You can deduct what you pay in rent from what you receive, up to NIS 7,500 per month, and pay the 10% flat tax only on the difference. If you receive NIS 6,500 and pay NIS 5,500, you owe tax on just NIS 1,000 — NIS 100 per month.

Who Needs to Report?

If you are on the exemption track and below the threshold, you generally do not need to report anything unless you are already required to file an annual tax return.

If you chose the 10% track, you must report and pay by January 30 of the following year through the Tax Authority website. Late payment brings interest, linkage and fines.

Not reporting is a criminal offence. The Tax Authority has significantly tightened enforcement in recent years using advanced data matching tools, even without a formal national landlord registry.

Owning Multiple Properties

If you rent out more than one apartment, the exemption threshold applies to your total combined rental income, not per property. You can choose a different tax track for each apartment, but the exemption calculation is based on all income together. Those holding more than 10 rental units may have their income classified as a business by the Tax Authority. Professional advice is strongly recommended.

Special Rule for Seniors Moving to Assisted Living

Israelis aged 65 and over who move into a nursing home or assisted living facility and rent out their former home are entitled to a tax exemption on rental income up to half of their annual assisted living costs, even if that amount exceeds the standard exemption ceiling.

The Long Term Impact of Your Choice

Whichever track you choose today can affect the capital gains tax you pay when you eventually sell the property. Tax attorney Hana Salomon of BDO explains that choosing the 10% or marginal tax track means depreciation of 2% per year will be deducted from your original purchase cost, increasing your taxable gain at the time of sale. The exemption track is more complicated, as the Tax Authority’s position is that depreciation should be deducted regardless, though this is currently being contested in the Supreme Court.

When in doubt, speak to a tax professional before making your choice.