Rental Income Is 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 5,470 NIS/month in 2025–2026, updated annually by the Tax Authority), 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.
The 10-Year Olim Exemption on Foreign Rental Income
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.