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  • Writer's pictureשוהם שאוליאן, רו״ח (עו״ד)

Deducting Rent Expenses from Rental Income for tax purposes

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A common question among people who both rent out and rent a property is whether it is possible to deduct the rent expenses they incur for the property they live in from the rental income they receive from their properties.

Section 17(12) of the Income Tax Ordinance allows for such a 'deduction' between rental expenses and rental income, but it had stringent conditions that made most people ineligible for this benefit. For example, rent expenses could be deducted against rental income only if the move was to a different property for work or business purposes, and even then, the deduction was only valid for five years.

However, this situation has changed. Following the new Arrangements Law that came into effect in 2023, the regulations for apartment landlords were amended. According to the updated regulations, a person who rents out their only apartment and lives in a rented property elsewhere can deduct from their rental income an amount equal to the rent they pay for the rented property, up to the amount of income they receive from renting out their property or up to 90,000 NIS, whichever is lower.

The tax imposed on the difference will be at a rate of 10%, and in practice, it will only apply to landlords who choose this option. Landlords who choose the exemption option will not be able to benefit from a similar relief.

Example: Moshe, who rents out his apartment in Haifa for 8,000 NIS per month and rents an apartment in Tel Aviv for 9,500 NIS per month, can deduct his rental expenses (114,000 NIS) from his rental income (96,000 NIS). The result is that Moshe will not pay tax on his rental income, saving 9,600 NIS in tax per year (950 NIS tax per month, assuming he chose to pay tax in this manner).

These changes are part of a new tax policy aimed at easing the burden on landlords and encouraging real estate investment in Israel.




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