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 options. Choosing the right option can save tens of thousands of shekels over time.
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 (approximately 5,654 NIS/month, frozen at this level for 2025–2027 under the 2025 Arrangements Law), 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
- If your monthly rental income exceeds the threshold, you cannot use this option at all - the entire income must be declared under one of the other two methods
- 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.
Option 3: Regular Income Tax Brackets
Under this option, your net rental income (gross rent minus deductible expenses) is added to your other Israeli income and taxed at regular income tax brackets (10–47%).
Deductible expenses include:
- Depreciation on the building (not land) - 2% per year of the building's value
- 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, 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 (approximately 5,654 NIS/month, frozen at this level for 2025-2027), it is completely tax-free with no filing required. Above that, you choose between a 10% flat tax on gross rent with no deductions, or regular income tax brackets (10-47%) on net rent after deductible expenses such as 2% annual building depreciation, maintenance, and management fees. 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.
The full-exemption threshold is approximately 5,654 NIS per month, frozen at this level for 2025 through 2027 under the 2025 Arrangements Law. 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 threshold is updated by the Tax Authority and applies to combined rent, not per property.
If your total monthly rent exceeds the exemption threshold you cannot use the exemption track at all for that income. There is also a partial-exemption mechanism: when monthly rent is below roughly twice the threshold (about 11,308 NIS/month in 2025-2026), part of the income can still be exempt and the remainder is taxed at regular brackets. Many landlords above the threshold simply elect the 10% flat rate instead for its simplicity.
The 10% flat rate is a flat tax on gross rent with no expense deductions, so it suits landlords with low deductible costs, such as new properties or those with no deductible mortgage interest. Regular brackets (10-47%) tax net rent after expenses including 2% annual building depreciation, repairs, management fees, and insurance, so they favor landlords with high expenses or low overall income. 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.
