Is rental income taxable in Israel?
If you own residential property and rent it to tenants - collecting שכירות (Schirut) - that rental income is subject to Israeli income tax. However, unlike most income which has just one tax path, Israeli rental income from residential property has three distinct taxation tracks, chosen apartment by apartment. Choosing the right one can save tens of thousands of shekels over time. If you use more than one track, the exemption calculation still counts your total income from all residential apartments.
Note: commercial rental income (offices, shops, storage) is taxed differently and is outside the scope of this article.
Option 1: Monthly Exemption Threshold
If your total monthly residential rental income is below the exemption threshold (NIS 5,654/month for 2025, the figure the Tax Authority publishes), that income is completely tax-free. No declaration, no filing, no tax.
Key rules:
- The threshold applies to total monthly rental income from all residential properties combined, not per property
- Above the ceiling the exemption does not simply vanish. Between the ceiling and twice the ceiling (NIS 11,308/month) a partial exemption applies: the excess over the ceiling is subtracted from the ceiling itself, and only what is left above that reduced exemption is taxed. Above twice the ceiling, the exemption track is out
- This option is ideal for landlords collecting modest rent on a single apartment in a peripheral area (typical rents below 5,000 NIS)
- You cannot deduct expenses (depreciation, maintenance, insurance) under this track - but with zero tax due, there are no expenses to deduct
Option 2: 10% Flat Rate on Gross Rental Income
If your monthly rental income exceeds the exemption threshold, or if it is below the threshold but you choose this option, you can pay 10% flat tax on your total gross rental income with no deductions.
Example: Monthly rent of 7,000 NIS. Annual rental income = 84,000 NIS. Tax = 8,400 NIS (paid as a lump sum when filing your annual tax return, or in quarterly advance payments).
Advantages of the 10% flat rate:
- Simple - no expense tracking required
- Predictable - you know exactly what you will owe each year
- Favorable for landlords whose deductible expenses are low (new properties with minimal maintenance, no mortgage interest deduction in Israel)
Disadvantage: if you have significant expenses (high management fees, renovation costs, substantial maintenance), you cannot deduct them under the 10% flat rate, and you also give up any offset, credit or exemption against that income.
One exception is worth knowing: since tax year 2023, section 122(f) lets a landlord who owns a single apartment and rents a home for themselves deduct the rent they pay from the rent they receive, capped at their rental income for the year or NIS 90,000, whichever is lower. The same deduction covers an annual payment for the landlord's or their spouse's place in a retirement home or geriatric hospital.
Option 3: Regular Income Tax Brackets
Under this option, your net rental income (gross rent minus deductible expenses) is taxed at your marginal rate. One detail catches most people out: on rental income the first bracket is 31%, not 10%. The 10% first bracket applies only to a landlord who reached the age of 60 in the tax year. Choosing this track also makes filing an annual return mandatory.
Deductible expenses include:
- Depreciation on the building (not land), at the rate set in the income tax regulations
- Repairs and maintenance costs (documented with receipts)
- Property management fees
- Building insurance premiums
- Vaad bayit fees when paid by the owner
- Arnona when paid by the owner (during vacancies)
Note: Mortgage interest is not deductible for residential rental income under standard rules in Israel. This is a significant difference from many other countries and means that heavily mortgaged rental properties often benefit more from the 10% flat rate.
Option 3 is best for landlords in lower income tax brackets (retired, part-time working) where rental income would be taxed at a low marginal rate (in practice, mainly landlords aged 60 and over, who get the 10% first bracket), or where expenses are very high.
How does the 10-year olim exemption on foreign rental income work?
This is a major benefit for olim who own rental property abroad. Under Israel's 10-year foreign income exemption:
- Rental income received from property located outside Israel is fully exempt from Israeli income tax for 10 years from your aliyah date
- This applies regardless of the amount - there is no cap
- You do not need to report this income on your Israeli tax return during the exemption period (though some reporting may still be required under the 2026 reform - confirm with your accountant)
- After the 10-year window expires, foreign rental income becomes fully taxable in Israel at regular rates
An oleh collecting £2,000/month from a UK rental property pays zero Israeli tax on that income for 10 years. The UK may tax it (depending on UK residence status), but Israel does not during the exemption window.
This is one of the most financially valuable olim tax benefits for property owners with assets abroad. Consult an accountant familiar with both Israeli and your home country tax laws to ensure you are correctly claiming the exemption and complying with any reporting requirements.
Israeli residential rental income can be taxed three ways. If your total monthly rent across all residential properties is below the exemption threshold (NIS 5,654/month for 2025), it is completely tax-free with no filing required. Above that, a partial exemption runs up to twice the ceiling, and you choose between a 10% flat tax on gross rent with no deductions or marginal rates on net rent, where the first bracket on rental income is 31% and only a landlord aged 60 or over gets a 10% first bracket. Mortgage interest is not deductible for residential rentals in Israel, which often makes the 10% flat rate better for heavily mortgaged properties. Separately, foreign rental income is exempt from Israeli tax for 10 years from your aliyah date, regardless of amount.
NIS 5,654 per month for 2025, as published by the Tax Authority. If your total monthly residential rental income from all properties combined stays below this figure, the income is completely tax-free and no declaration is required. The ceiling counts rent from every residential apartment let by you, your spouse living with you, or your children under 18, so it applies to combined rent and not per property.
A partial exemption takes over. Between the ceiling and twice the ceiling (NIS 11,308/month), the Tax Authority subtracts the excess over the ceiling from the ceiling itself, and only the remainder above that reduced exemption is taxed. On rent of NIS 6,000 the excess is NIS 346, the reduced exemption is NIS 5,308, and NIS 692 is taxable. Above twice the ceiling the exemption track closes, and many landlords elect the 10% flat rate instead for its simplicity.
The 10% flat rate is a flat tax on gross rent with no expense deductions and no offsets, credits or exemptions, so it suits landlords with low deductible costs. The marginal-rate track taxes net rent after expenses such as building depreciation, repairs, management fees and insurance, but its first bracket on rental income is 31% rather than 10%, unless the landlord reached the age of 60 in the tax year, and it obliges you to file an annual return. Mortgage interest is not deductible for residential rentals in Israel, which often tips heavily mortgaged properties toward the 10% flat rate.
No. Rental income from property located outside Israel is fully exempt from Israeli income tax for 10 years from your aliyah date, regardless of the amount. Note that for olim who become Israeli residents on or after 1 January 2026, the income remains exempt but worldwide income and assets must now be reported regardless of amount; the exemption itself is unchanged. After the 10-year window ends, foreign rental income becomes fully taxable in Israel at regular rates. Your home country may still tax the income during the exemption period.