Taxation for landlords in Israel will be revised in January 2022. At present landlords can lease apartments for NIS 5,196 per month and be exempt from paying income tax on the money received. This exemption ceiling is linked to the Consumer Price Index (CPI) and will be raised by at least 5% next month to around NIS 5,500 per month.
Those who may naturally be affected by next month’s rise in the tax threshold for landlords are tenants. Over the past year, the Central Bureau of Statistics reports that tenants renewing contracts in October were required to pay 4.2% more on average than in the previous contract. For new tenants, rentals had risen by 8.1% on average. On social networks and in brokerage offices there is talk of sharper increases in high-demand areas. (On top of this, due to next month’s revision of the tax threshold, landlords can afford to raise rents by 5% without needing to pay tax.
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There are currently three tax tracks for landlords, the most popular of which is the full exemption of paying income tax up to the ceiling. Above the ceiling then the landlord has a tax liability and is required to report the income. The reasoning is that it pays for the landlord to lease the apartment at a reasonable price and thus avoid the need to report and pay tax. Exceeding the threshold does not necessarily result in a full tax payment and landlords can still benefit from a partial exemption, as long as rental income does not exceed twice the ceiling (this year, NIS 10,382 per month).
The second track is the “10% track, which requires landlords to report to the Israel Tax Authority and pay 10% tax, without any opportunity to deduct expenses or reduce the depreciation of the apartment.
The third track is the “marginal tax” route. Those who choose this alternative may deduct current expenses from the taxable amount, for example the fees of the lawyer who drew up the lease, expenses for routine repairs, etc. It is also possible to reduce during the life of the property the depreciation of the purchase cost by 2%.
Property purchase tax will also be updated
Purchase tax rates on buying apartments will also be updated in January 2023. The purchase tax exemption threshold for a first apartment, which currently stands at NIS 1,805,545 will rise by more than 5% to NIS 1.9 million.
The rest of the purchase tax rates for higher amounts will also be revised. Currently, a purchase tax rate of 3.5% applies to amounts between NIS 1,805,545 and NIS 2,141,605, 5% on homes costing NIS 2,141,605 and NIS 5,525,070, 8% on homes costing NIS 5,525,070 and NIS 18,416,900 and 10% above NIS 18,416,900 All of these amounts will be updated according to the index increase next month, which is expected to be over 5%.
Published by Globes, Israel business news – en.globes.co.il – on December 20, 2022.
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