Rental Income Tax: The Three Options and How to Choose (Updated for 2026)

This guide covers the main rules for residential rental income earned by an individual, as of 2026. It is not a substitute for tax advice, and you should review your circumstances with an accountant.

Income from renting out residential properties is exempt from tax as long as the total monthly rent from all properties combined does not exceed the exemption threshold. In 2026, the threshold is 5,654 ₪ per month.

When income exceeds the threshold, the exemption does not disappear immediately. Instead, the exempt amount is reduced by the amount above the threshold, and the remaining income is taxed at progressive rates. Once monthly income reaches twice the threshold, approximately 11,308 ₪, the exemption disappears entirely.

Key conditions: the property must be used for residential purposes, and eligibility is assessed separately each month.

A flat 10% tax applies to all rental income, from the first shekel, with no tax brackets or income ceiling. Under this option, you cannot deduct expenses such as repairs, depreciation, or interest. Tax is paid once a year, by January 30 of the following year.

This option is simple and convenient, and is generally cost-effective when income exceeds the exemption threshold and expenses are low.

Rental income is added to your other income and taxed at progressive rates. For rental income, the starting tax rate is generally 31%, but for those aged 60 or over, rates start much lower, sometimes at 10%. The advantage of this option is that you can deduct expenses such as depreciation, interest on a loan used to purchase the property, repairs, and management fees.

This option is mainly suitable for landlords with high expenses, or those over 60 whose applicable tax rates are low.

• *Tax rate: Exemption: 0% up to the threshold; progressive rates on the excess; 10%: 10% on all income; Progressive rates*: based on tax brackets, generally starting at 31% (lower from age 60)


• *Expense deductions: Exemption: No; 10%: No; Progressive rates*: Yes


• *Best suited to: Exemption: Income below or close to the threshold; 10%: High income and low expenses; Progressive rates*: High expenses or age 60 and over


• *Complexity: Exemption: Low; 10%: Low; Progressive rates*: Higher, requires a tax return

A landlord aged 45, with one property renting for 7,500 ₪ per month (using the 2026 threshold):

• Under the exemption option: Income exceeds the threshold by 1,846 ₪, so the exemption falls to 3,808 ₪. The remaining taxable income of 3,692 ₪ is taxed at 31%, resulting in approximately 1,145 ₪ in tax per month.


• Under the 10% option: Tax is 750 ₪ per month on the full 7,500 ₪.

Under the progressive-rate option, taxable income is rental income minus expenses incurred in generating that income. Common deductions include depreciation on the building, interest on a loan used to purchase the property, repairs and maintenance, insurance, and management fees. Capital expenditure, such as renovation work for property enhancement, is treated differently. Claiming deductions requires organized records and receipts, so this option is mainly suitable for owners who keep systematic property records.

This is a common situation: you own one property, rent it out, and rent a home yourself, perhaps in another city. To address this, a sub-option was introduced in recent years within the 10% option. Subject to certain conditions, it allows you to deduct the rent you pay, up to an annual limit, and pay 10% only on the balance. The conditions are detailed, so check with an accountant to see whether you qualify.

• The threshold applies to all properties combined, not to each property separately. If you own several properties, the exemption shrinks quickly.


• You cannot combine the exemption and 10% options for the same property. However, owners of several properties can sometimes choose a different option for each property, subject to the rules.


• You can change options from year to year, but not retroactively.


• Thresholds and tax brackets are updated, so you should reassess your choice each tax year.


• Reporting obligations may apply even when no tax is payable, depending on your circumstances. Check with an accountant.

• Assuming the exemption applies separately to each property – the threshold applies to total income from all properties.


• Forgetting to pay under the 10% option – annual payment is due by January 30, even without a payment notice from the Israel Tax Authority.


• Failing to keep receipts – only to discover that progressive rates would have been more cost-effective, but you cannot substantiate your expenses.


• Not reviewing your choice each year – a change in rent, age, or the number of properties you own can make another option more cost-effective.

Choosing the right tax option, especially progressive rates, depends on accurate income and expense records. At Flamingo, all property payments, expenses, and receipts are consolidated in the owner portal and organized reports, so you and your accountant have all the information in one place at year-end.

Want organized property management, including reporting? Leave your details on our investors page, and explore the investor tools on our website.