In Israel, nearly 28% of households live in rental housing — and many of them are both landlords (owning a rented property) and tenants (renting their primary residence).
These landlord-tenants are now at the center of a major tax reform adopted in January 2023. The objective: to encourage mobility, reduce housing-related taxation, and better align the law with the realities of the property market.
The reform introduces several key measures, most notably the ability to deduct the rent you pay from the rent you receive.
RENTAL INCOME AND TAXES: WHAT ARE THE 2023 LAW CHANGES FOR YOU
Before this reform, the taxation of rental income was based on three distinct regimes:
1. Full Exemption
Landlords earning up to 5,471 NIS in monthly rental income (amount applicable for 2025) could benefit from a full tax exemption, provided the rental was for residential use and the tenant was an individual.
2. Taxation at the Marginal Rate
Under this system, rental income was added to the taxpayer’s total taxable income.
Advantage: All property-related expenses could be deducted (maintenance, repairs, professional fees, interest, depreciation, etc.).
Drawback: The tax rate could reach up to 50%, depending on household income.
3. The 10% Fixed Tax Rate
A simple and popular option: landlords could opt for a single 10% tax on their gross rental income.
However, no expenses could be deducted – until the 2023 reform.
TAX BREAKDOWN: THE MAJOR INNOVATION OF 2023
Since January 1, 2023, landlords who own a single property and rent it out while renting another home themselves can deduct the rent they pay from the rent they receive.
In practice:
- The maximum deduction is 90,000 NIS per year (or 7,500 NIS per month);
- The benefit applies only to those who have chosen the 10% tax regime;
- The 10% tax is applied only to the difference between rent received and rent paid.
Example: If you receive 8,000 NIS in rental income and pay 7,000 NIS in rent for your own home, you’ll only be taxed 10% on 1,000 NIS – that is, 100 NIS of tax per month.
This measure aims to support families who, for professional or personal reasons, temporarily leave their residence without selling their property.
WHO CAN BENEFIT FROM THIS DEDUCTION?
Eligibility conditions are strict:
- You must own only one residential property in Israel
- The property must be rented for residential use
- You must be a tenant yourself (including in a retirement home or geriatric hospital)
- You must choose the 10% tax regime;
- The tax household must be joint (the couple’s income and rental income are considered together).
Payments made to relatives (parents, children, etc.) are not deductible.
HOW TO APPLY THE NEW DEDUCTION
The 10% regime does not normally require an annual declaration, but to benefit from the deduction, you must:
- Open a “tenant-payer file” with the Israeli Tax Authority (Form 3302);
- Pay the tax once a year, before January 30 of the following year;
- Declare online on the official Israeli Tax Authority website.
If your annual rental income exceeds 363,000 NIS, you will be required to file an annual income tax report.
NEW OPPORTUNITIES – BUT CAUTION ADVISED
While this reform simplifies taxation for many households, it is not always the most advantageous option.
- You cannot create a tax loss – rent paid cannot exceed rent received;
- The 90,000 NIS ceiling remains fixed, even if your rent is higher;
- If you use part of your home as an office or business space, you may lose certain business deductions.
For owners of higher-value properties, the standard taxation regime may still be more beneficial — especially after age 60, when marginal tax rates begin at 10%.
OPTIMIZE YOUR FINANCES: CHOOSING THE RIGHT TAX REGIME
With several available options – full exemption, fixed rate, or standard taxation – it is essential to simulate different scenarios before making a decision.
Key factors to consider include:
- The amount of rent received and paid;
- Maintenance and other property expenses;
- The taxpayer’s age;
- And family or professional circumstances (for instance, relocation for work).
A personalized analysis helps avoid costly mistakes and maximize tax savings.
CONCLUSION: GET PROFESSIONAL GUIDANCE TO SECURE YOUR TAX DECISIONS
The new Israeli tax rules open up unprecedented opportunities for landlord-tenants. Yet behind these apparent simplifications lie precise calculations and strict conditions.
At Assuline & Co, accounting and tax advisory firm, we assist individuals and investors at every stage:
- Comparative analysis of available tax regimes;
- Tax return optimization;
- Compliance with Israeli tax regulations;
- Strategic planning for rental income.
Book a consultation with our experts today to review your situation and benefit from a tailored, strategic approach.