Property owners renting out residential apartments in Israel must select one of 3 legal taxation tracks under Income Tax Ordinance regulations.

1. Exemption Track (Full or Partial)

Rental income up to 5,654 ILS per month (2026 indexed ceiling) from residential property is 100% tax-exempt. For rental income exceeding this ceiling, a proportional exemption reduction formula applies.

2. Reduced Flat 10% Tax Track

Landlords pay a flat 10% tax on gross rental income. No expense deductions (renovations, interest) are permitted under this track, and tax must be paid within 30 days of the end of the tax year (by January 30th).

3. Full Marginal Tax Track (With Expense Deduction)

Rental income is added to regular taxable income and taxed according to marginal tax brackets (starting at 31%, or 14% for landlords age 60+). Under this track, landlords may deduct actual expenses: 2% annual building depreciation, maintenance repairs, legal fees, and mortgage interest.

Dramatic 2026 Novelty: "Rent & Lease" Tax Offset Relief

Under the new 2026 outline, an individual renting out their sole residential apartment and leasing another residential home for personal living can deduct paid residential rent expenses directly from rental income received, paying tax only on the net difference!

Additional Reminders

Landlords owning multiple properties or foreign real estate require tailored tax modeling to select the optimal track.