As part of the tax bill for the year 2021, the Israeli government is preparing to carry out a major reform concerning the declaration of rental income in Israel!
This reform will affect owners of apartments in Israel intended for rental.
It will be decided that every apartment owner will have to file a rental income declaration in Israel, even when the rent received remains below the exempt threshold.
What is the monthly tax-free amount on rental income in Israel?
For information, the monthly amount of exempt rent in Israel is 5,070 Nis for the year 2021.
This rate is revised every year, according to indexation and inflation.
At the end of the article, we present the rate over the last few years.
A reform that concerns rental income in Israel, but not only ...
The Finance Ministry's forthcoming reform will also affect other aspects of real estate taxation in Israel.
The most significant proposal concerns the obligation for investors to declare rental income in Israel.
The Ministry of Finance wants to implement the obligation to declare rental income from an investment apartment, regardless of the apartment owner's monthly income.
Currently, the law only requires declaration when the monthly rent exceeds 5,070 NIS per month, and lower amounts are entitled to total exemption.
This existing exemption applies not only to the absence of taxation, but also to the failure to declare rental income in Israel.
In other words, if a landlord rents out his apartment for less than the stated monthly amount, he doesn't have to pay taxes in Israeland does not have to file an annual tax return.
Please note that this exemption applies to all rental income received by the individual.
A small example to help you understand the exemption of rental income in Israel.
Example 1 If an owner has 2 apartments in Israel, each rented at 3,000 Nis / month.
The monthly amount received by the owner is 6,000 Nis.
Since this amount exceeds the ceiling, the entire rental income is taxable.
You can't tax one apartment and not the other, just because one is below the lower threshold.
In this specific case, the owner should therefore opt for one of the solutions for declaring rental income in Israel.
Read also: How to optimize your rental income in Israel?Example 2 If an owner has 2 apartments in Israel. The first is rented at 3,000 Nis/month, the second at 7,000 Nis/month.
The monthly amount received by the owner is 10,000 Nis.
As this amount exceeds the ceiling, all rental income is taxable.
In this case, we can't claim that the first apartment is not taxable, on the pretext that its rent is below the lower threshold.
It's all the rental income in Israel that we look at every month.
A little tip:
If in our example the second apartment was not rented out for part of the year, the owner could claim a partial exemption for the year.
Please contact us for further details.
"Not seen - not taken" on rental income?
The Israeli tax authority admits that it is having difficulty tracking down taxable apartment owners, and understands that the partial declaration requirement has created discrepancies in revenue collection.
The state has estimated that this discrepancy amounts to tens of millions of shekels per year.
In their opinion, a reporting obligation on rental income in Israel, a complete and total obligationThis will make it difficult for apartment owners in Israel to continue not declaring.
Owners of rented apartments will avoid making false declarations to the Israeli tax authorities.
As a reminder, false declarations can lead to criminal prosecution and heavy fines.
Important information about banks in Israel:
Your bank may block the deposit of rental income if you are unable to submit a tax return.
It will also be able to refuse your tenant's checks/transfers.
The sale of apartments in Israel has also been reformed.
This second reform is designed to reduce the tax benefits granted to owners of several apartments in Israel.
We invite you to consult the following link for the article dedicated to this part of the reform:
Reduction of the tax benefit period when selling several apartments in Israel.
Our opinion on the new tax reforms in Israel:
- These reforms are well-intentioned and aim to increase the transparency required for the declaration of rental income in Israel.
- It's obvious that these days, with the digital tools available to government, such a reform is necessary.
- This will give the government a clear and complete picture of all rental income in Israel.
- The government will be able to know the average rental price in a sector, and thus reduce the risk of fraud / false declaration.
- Increasing transparency and encouraging more people to declare their income will ultimately reduce taxation on this type of income (raising the monthly threshold, reducing the rate, etc.).
Contact us to optimize your rental income in Israel!
Apartment owners are reminded that declaring rental income does not necessarily mean paying tax.
In many cases, the deduction mechanism allowed in Israel means that rental income in Israel is exempt, or even creates a capital loss (tax loss) which can be deducted from any future resale of the apartment.
Our firm specializes in this type of operation, and we invite you to contact us to optimize your rental income in Israel.