Owners of rental apartments may soon pay tax on rental income from the first shekel. As Globes reported on November 3, 2026, the Ministry of Finance is promoting, ahead of the next Arrangements Law (Hok HaHesderim), the Tax Authority's proposal to cancel the exemption ceiling on income from renting out a residential apartment and to set up a registry of rented apartments in which every landlord would have to report the unit. This is still only a proposal: the government has not approved it and the Knesset has not discussed it. Even so, anyone who rents out an apartment or plans to buy one as an investment should understand now how the tax is calculated today and what may change.
The proposal: tax on rent with no exemption ceiling
According to estimates cited by Globes, taxing rental income from the first shekel could bring in up to NIS 5 billion a year, and the Tax Authority's director, Shay Aharonovitch, said the reporting requirement alone could add about NIS 2 billion a year. The Authority argues that the current exemption encourages concealment of income and is inequitable. Ice also reported, on November 4, 2026, on the Authority's intention to include the move in the Arrangements Law, and on warnings from apartment owners that rents will rise.
The proposal is not new. According to the same Globes report, over the past decade every Tax Authority director tried to cancel the exemption, and the initiative was blocked time after time, among others by political figures. The decision will rest with the new government and the Knesset: even if the proposal is included in the Arrangements Law, it will have to pass the government and three readings in the Knesset before it applies.
Today: three tracks for tax on rental income
Today an individual who rents out a residential apartment chooses one of three tracks in each tax year. The first is the exemption track, under the Income Tax (Exemption from Tax on Income from Renting a Residential Apartment) Law, 5750-1990. According to Kol Zchut, the exemption applies when the landlord is a private individual, the apartment is not recorded in business books and the tenant uses it solely as a residence. A landlord who enjoys a full exemption cannot deduct expenses, while with a partial exemption some of the expenses may be recognized against the part taxed in full. According to a review by the accounting firm Alex Shapira and Co., the ceiling is measured against the total rent received by the landlord, the spouse living with the landlord and the landlord's children under 18.
The second track is a 10% tax under section 122 of the Income Tax Ordinance. According to the same review, the tax is calculated on the entire rent, with no ceiling and no deduction for expenses, depreciation, loss offsets or tax credit points, and it is paid within 30 days after the end of the tax year, unless advance payments were made during the year. Rent for 2026 is therefore paid by the end of January 2027, and late payment carries linkage differentials and interest. Since 2023 a landlord may, subject to conditions, deduct in this track the rent the landlord pays for the apartment he or she lives in, and according to the Tax Authority's position only if the tax was paid within those 30 days.
The third track is the regular track: the income is taxed at the ordinary tax brackets, and in return all expenses may be deducted, including depreciation and financing costs. A landlord under 60 generally pays at least 31% on such income, so this track mainly suits those with high expenses.
The 2026 rental income exemption ceiling and the partial exemption
The exemption ceiling stands at NIS 5,654 a month. According to Globes, the amount was linked to the consumer price index every year until the 2025 budget froze it for three years, and according to the Alex Shapira review the freeze was set in the Economic Efficiency Law for the 2025 budget year and applies to the 2025 through 2027 tax years.
Exceeding the ceiling does not wipe out the exemption all at once. Kol Zchut explains that the excess is subtracted from the ceiling: a landlord who receives NIS 7,000 a month enjoys an exemption on NIS 4,308 and pays tax at the brackets on NIS 2,692. From rent of NIS 11,308 a month there is no exemption at all, and the choice is between 10% on everything and the regular track.
The choice also has a delayed effect, on the day the apartment is sold. According to Kol Zchut, a landlord who enjoyed a full exemption on the rent and is not entitled to a full exemption from land appreciation tax (mas shevach) will also be charged on the sale for depreciation at 2% of the apartment's value for each year it was rented, which may increase the land appreciation tax. According to the Alex Shapira review, conflicting decisions have been issued on this question. It therefore makes sense to tie the decision on the rental track to the land appreciation tax exemption check you carry out before selling.
Also on the table: purchase tax for investors
At the same time, according to Globes, Treasury representatives proposed in the three-member committee preparing the 2027 budget to cut purchase tax (mas rechisha) for investors in exchange for taxing rent from the first shekel. Today a buyer of an additional apartment pays 8% up to NIS 6,055,070 and 10% on the balance, under a temporary provision. A person involved in the committee's work told Globes that there is no deal at the moment, and Aharonovitch noted that the new government will have to decide whether to extend the temporary provision. The tax on a planned purchase can be estimated with the purchase tax calculator (Hebrew).
What to do now
As long as the proposal has not become law, the existing rules apply in full. A landlord who chose the exemption should make sure the lease states that the apartment is used solely as a residence, or obtain written confirmation of this from the tenant: according to Kol Zchut this is a condition for the exemption, and anyone who files an annual return attaches the document to it. A landlord who chose the 10% track should mark the end of January in the calendar. And anyone planning an investment purchase would do well to calculate the return also under a scenario in which the exemption is cancelled and purchase tax changes, and to check in advance the effect on land appreciation tax down the road. The legal review of the transaction itself is described on the real estate transactions page.
Anyone who rents out an apartment or is considering buying an investment apartment can contact our offices in Modiin or Tel Aviv for a review of the taxation and the track that fit their specific case.
Questions and answers
How much rent is tax-exempt in Israel?
According to Kol Zchut, residential rent of up to NIS 5,654 a month is exempt from tax, provided the landlord is a private individual, the apartment is not part of a business and the tenant lives in it. Above the ceiling the exemption shrinks gradually, and from rent of NIS 11,308 a month there is no exemption at all. The ceiling has been frozen for the 2025 through 2027 tax years.
How do I pay the 10% tax on rent, and by when?
Under section 122 of the Income Tax Ordinance, you pay 10% of the entire rent, with no deduction for expenses or depreciation, within 30 days after the end of the tax year (if no advance payments were made). For 2026 income the deadline is the end of January 2027, and late payment carries linkage differentials and interest.
Has a tax on rent from the first shekel already been decided?
No. According to Globes (November 3, 2026), this is a Tax Authority proposal that the Ministry of Finance is promoting ahead of the next Arrangements Law. To take effect, it needs the approval of the government and the Knesset, and earlier attempts to cancel the exemption were blocked.
Source: Globes (Hebrew), 3.11.2026; Ice (Hebrew), 4.11.2026; Kol Zchut: Tax exemption on income from renting out a residential apartment (Hebrew), checked 10.11.2026; Alex Shapira and Co.: Tax tracks for residential rentals (Hebrew), checked 10.11.2026; Alex Shapira and Co.: Paying the 10% tax for 2025 (Hebrew), 14.1.2026
First published in Hebrew. Read the Hebrew original