Israel Rental Income Tax Guide (2025–2027): Comparing the 4 Tax Tracks

Renting out residential property in Israel requires familiarity with four distinct tax tracks governed by Israeli tax law. Selecting the optimal track based on your total household rental income, age, and ongoing property expenses can save thousands of Shekels each tax year while maintaining full compliance with the Israel Tax Authority.

1. Full Tax Exemption Track (Up to 5,654 ILS/month)

Under the Income Tax Law (Exemption from Tax on Income from Residential Rent), an individual renting out residential property in Israel is eligible for a full tax exemption as long as total monthly rent does not exceed the statutory ceiling. Following the freeze of tax brackets and thresholds for 2025–2027, the monthly exemption ceiling stands at 5,654 ILS/month (67,848 ILS/year).

• Combined Family Unit Test: Crucially, the 5,654 ILS threshold is evaluated against the combined residential rental income of the entire family unit (the landlord, spouse, and children under 18) across all rented residential apartments combined—not per apartment.
• Reporting Requirement: Landlords claiming the tax exemption whose annual residential rental income exceeds approximately 29,000 ILS are required to submit a brief online declaration detailing the property and annual rent collected.

2. Partial Exemption Track ("Sliding Ceiling": 5,655 ILS to 11,308 ILS/month)

When combined monthly rent exceeds 5,654 ILS but remains below double the ceiling (11,308 ILS/month), the exemption is reduced Shekel-for-Shekel by the excess amount:

Excess = Monthly Rent − 5,654 ILS | Adjusted Exemption = 5,654 ILS − Excess

The taxable portion (Monthly Rent − Adjusted Exemption) is taxed at passive marginal income tax rates—starting at 31% for individuals under age 60, or starting at 10% for landlords aged 60 and above under Section 121B. Current maintenance expenses and depreciation can be deducted proportionally to the taxable portion. Above 11,308 ILS/month, the exemption drops to zero.

3. 10% Flat Reduced Tax Track (Section 122 of the Income Tax Ordinance)

For landlords whose monthly rental income significantly exceeds the exemption ceiling, the 10% track under Section 122 is the most popular and streamlined option. You pay a flat 10% tax from the very first Shekel, with no income ceiling and without filing an annual tax return (Form 1301) if you are not otherwise required to file one.

• No Expense Deductions: Under the 10% track, you cannot deduct ongoing repairs, depreciation, or mortgage interest (with the sole exception of the Section 122(6) rent-against-rent offset for eligible single-apartment owners).
• Annual Payment Deadline: The 10% tax must be paid no later than January 30 following the end of the tax year (or via periodic payments during the year).

4. Full Marginal Tax Track (Section 121)

Under the regular marginal track, 100% of net rental income is added to your taxable income and taxed at marginal brackets. Its major advantage is the ability to deduct all recognized expenses incurred in generating the rent: annual building depreciation (typically 2% of structure value), real mortgage interest, ongoing repairs, legal/brokerage fees, and personal tax credit points (Nekudot Zikui). Requires filing an annual Form 1301. High-income earners should also account for Surtax (Mas Yisaf) when total annual taxable income exceeds 721,560 ILS.

Numerical Comparison Table (Landlord Under 60, 31% Base Passive Bracket, Zero Expenses)