Tax on Rental Income in Israel: What a Foreign Owner Actually Pays

Israel taxes rent from an Israeli apartment wherever the owner lives, and offers three tracks: an exemption up to ₪5,654 a month, a flat 10% of gross rent, or the ordinary ladder from 31%. The exemption is the one everyone quotes — and in 9 of 9 tracked Tel Aviv neighborhoods, the median asking rent is already above it.

Three tracks, and the choice is yours

An individual letting a residential apartment in Israel picks one of three tax treatments each year. The exemption track charges nothing up to a monthly ceiling and tapers away above it. The flat track charges 10% of the gross rent under section 122 of the Income Tax Ordinance, with nothing deductible. The ordinary track applies the normal rate ladder to the rent after allowable expenses.

You may use different tracks for different apartments, but not two tracks on the same apartment in the same year — and if you take a partial exemption on an apartment, the balance goes onto the ordinary ladder, not onto the 10% rate. Which track wins is arithmetic, not preference: the exemption is best at low rents, the flat rate at high rents with few expenses, and the ordinary ladder where mortgage interest, depreciation and maintenance are large enough to eat the taxable base.

The exemption everyone quotes, and what Tel Aviv rents do to it

The exemption ceiling is ₪5,654 per month for tax year 2026. What most explanations omit is the taper. Above the ceiling, the exempt amount is reduced by however much the rent exceeds it — so at ₪6,654 the exemption is not ₪5,654 but ₪4,654, and by ₪11,308 it is zero.

That taper is the whole story in Tel Aviv. Our tracked asking-rent panel publishes a median for 9 neighborhoods (July 2026, n = 1,529 citywide, gate n ≥ 20). In 9 of 9 of them the median asking rent is above the exemption ceiling. In 5 of 9 it is more than double the ceiling, which leaves no exemption at all. There is no neighborhood we publish where a median-rent apartment is fully exempt — not even Florentin, the cheapest, at ₪6,500 (1.15× the ceiling).

Read the citywide row carefully, because it is the one that surprises people. A median Tel Aviv apartment asking ₪10,500 a month is 1.86× the ceiling, so only ₪808 of that rent is exempt and ₪9,692 is taxable. The exemption is not wrong — it is simply built for a national rental market whose typical rent sits well below Tel Aviv’s.

The 10% flat track, and the bill it defers

Because the exemption fades out at Tel Aviv rents, most foreign owners here end up comparing the flat track against the ordinary ladder. The flat track charges 10% of the gross rent — no expenses, no depreciation, no credits or offsets. On our citywide median asking rent that is roughly ₪1,050 a month, about ₪12,600 a year against ₪126,000 of rent. It is paid in a single payment within 30 days of the end of the tax year — by 30 January — unless you paid advances during the year; late payment attracts interest and linkage.

There is a catch worth naming, because it is left out almost everywhere. Section 122(c) provides that the depreciation you could have deducted, but did not because this track forbids it, is added back to the sale value when you sell — increasing the capital gains tax (mas shevach) on the disposal. The exemption track has a parallel effect: taking it disapplies the rented-apartment depreciation regulations. Neither kills the case for these tracks. Both mean the headline rate is not the whole cost, and the difference lands years later, at exit.

One narrow relief is worth knowing if you also rent your own home: an owner of a single apartment who lets it out and rents somewhere else to live may deduct the rent they pay, capped at ₪90,000 a year or their rental income, whichever is lower, before the 10% applies. It rarely fits a non-resident owner, but it is the reason a flat “10% of gross, no exceptions” description is not quite right.

The ordinary ladder starts at 31%, and tops out at 52%

Rent is classed as income not from personal exertion, which is why the ordinary ladder does not open at the low bands that apply to salary. For tax year 2026 it runs 31% on the first ₪301,200, 35% to ₪560,280, and 47% above that. Owners aged 60 and over are the exception: they get the reduced ladder, opening at 10%.

Above ₪721,560 of taxable income a 3% surtax applies, and a further 2% is charged on capital-source income — which non-business rental income is. The top combined rate on Israeli rental income is therefore 52%, not the 47% you will see quoted on pages that stop at the ordinary ladder. Against that, this is the only track where expenses come off: mortgage interest, repairs, agent and legal fees, and depreciation. Where a mortgage is large, the ordinary ladder can still beat 10% of gross — at our citywide median, 10% of gross is about ₪12,600 a year, while 31% of the post-taper taxable portion alone would be roughly ₪36,060 before any expenses are deducted.

Can a foreign owner actually use these tracks?

This is the question that decides the whole page, so here is the evidence rather than a bare yes. Both concessions are written for an individual — neither the 1990 exemption law nor section 122 attaches any residency condition to the owner. What each one does require is that the apartment be in Israel. The drafting looks deliberate: where the legislature wanted to distinguish by location it did so about the property, and a separate provision handles rental income from property outside Israel at a different rate.

On top of that statutory reading, Israeli accountancy and law firms that publish on non-resident taxation describe all three tracks as open to a foreign resident, and we found no source asserting a residency restriction. Two caveats belong with that. First, we could not retrieve the Tax Authority’s own guidance page on the three tracks — it is a client-side application that does not serve its text to a fetch — so this rests on the statutes plus professional commentary rather than on the Authority’s wording. Second, a foreign owner does not get the Israeli credit points that reduce a resident’s bill, so the ordinary ladder is harsher for a non-resident than the same rate table is for a resident. Have an Israeli CPA confirm your position before electing.

What the oleh benefits do not cover

Two separate immigration tax benefits get misapplied to rental income, and both misreadings are expensive.

The well-known one is the ten-year exemption for a new immigrant or long-returning resident. It is confined to income produced or accrued outside Israel, or sourced in assets outside Israel. An apartment in Tel Aviv is neither, so rent from it is fully chargeable in Israel during those ten years like anyone else’s. The newer one is an incentive that came into force on 31 March 2026 for qualifying arrivals, and it genuinely does exempt Israeli-source income — but only income from personal exertion, meaning business and employment. Rental income is precisely the category that is not personal exertion. If you are planning a purchase around either benefit, plan it around what they actually cover: the purchase-tax side, where an oleh really does get a reduced schedule, not the rental-income side.

Short-term letting is a different regime

If the plan is nightly or weekly letting, neither concession is available. The Tax Authority treats short-term residential letting as a business, and both the exemption and the 10% track are written to exclude business income — section 122 applies only where the rent is not income from a business. Scale can trigger the same result on long lets: the Authority’s published position treats 10 or more let apartments as a business, with 6–10 examined case by case and five or fewer generally fine. A yield model built on 10% and then executed as a holiday let is a model of the wrong tax.

What this does to the yield

Our rental-yield page publishes a citywide gross yield of 2.77% (July 2026), and gross is doing real work in that sentence: it is before arnona, va’ad bayit, home insurance, maintenance, management, vacancy — and before this page’s tax. Tax alone, on the flat track and ignoring every other cost, takes a 2.77% gross yield to about 2.49%. That is an upper bound on the after-tax figure, not an estimate of it, because the other costs are real and we do not publish them. We are stating it precisely because the gap between a quoted gross yield and what an owner actually banks is where most foreign-buyer disappointment lives.

The parts we could not pin down

Three questions came up in the research that we will not answer with a number, because we could not verify one to the standard the rest of this page is held to. Withholding: the Ordinance requires a payer of Israeli income to a non-resident individual to withhold at 25% unless the assessing officer directs otherwise; how that applies to a private tenant paying a foreign landlord is genuinely unsettled, and a mechanism exists to reduce it. Filing: there is a threshold above which flat-track rental income requires a full annual return rather than a short form, but we found it in one source and stated for a prior tax year, and could not confirm it applies identically to a non-resident. National insurance: it can attach to the ordinary track, but the position for non-residents is a separate question we have not researched. Each of these is a question for an Israeli CPA about your specific facts.

Frequently asked questions

Where this fits

Rental tax is the running cost that follows the purchase. Before it sit eligibility (can foreigners buy), the one-off purchase tax and the closing-cost stack, and the mechanics of getting the money into Israel. Alongside it sit the numbers this page is computed from — the asking-rent panel and the gross yield it produces (methodology; full data on the market hub) — and the municipal occupancy charge on arnona in Tel Aviv, va’ad bayit and home insurance.