Starting from the beginning of January, apartment renters received an additional benefit – an increase in the exemption ceiling. This means that if in the past they paid tax (usually low) from renting an apartment of NIS 5,195 or more, now it is from NIS 5,470 (linked to the index). It’s not a big drama, but it’s also something, and in general – the apartment renters enjoy a lot – although they have a purchase tax on the purchase of a second, third, etc. apartment that exceeds the purchase tax for first apartment buyers, but they don’t actually have taxes up to this level, and even above It is always a 10% tax, unless it is someone for whom renting apartments is a type of business. So this is a high tax.
Please note – if you invest in the stock market, shares, bonds, etc. – you have tax, but if you invest in a second apartment, you usually do not have tax on the profit. Why? Because they claim that this allows investors to buy apartments and rent at reasonable prices. If there is a tax on them, then they will rent at higher prices. But if they have a tax, they won’t buy apartments, then the demand of the investors will decrease and even they will leave the market and maybe the apartment prices will go down. Right? Yes, but governments don’t like to touch this tax. Maybe because every senior minister here has several apartments and he also benefits from this low tax.
The threshold of NIS 5,470 is important for renters and landlords. The landlords will debate whether they are close to this amount or whether to raise the price beyond that. Renters can get a “gift”, a modest increase if they are close to that amount. What does that mean? Rental prices have skyrocketed in the past year. Over 8% for new tenants. Imagine that the rent is 5,200 and the landlord is considering whether to raise the price and by how much? It is likely that he will stop at NIS 5,470. It is likely that he will stop at this level until it is no longer financially viable for him.
If, for example, he believes that it is possible to receive NIS 5,500, he will compromise and settle for NIS 5,470, just to avoid being on the income tax reporting track. Probably even if it is NIS 5,600 he will give up the increase. But if he thinks he deserves 6,000 shekels, he is already in a dilemma (calculation below).
By the way, already today, according to the estimates, there are many thousands and even a few tens of thousands who should report to the tax authorities about the rent and do not report it. It is expected that at the same time as the rent increases, more people will join the circle.
How much tax do you pay on rent?
There are three tax tracks – first track: Full exemption: if the amount of the monthly income from the rent does not exceed the amount of the financial ceiling established by law each month during the year, which as mentioned will be updated to NIS 5,470.
Partial exemption: When the amount of the monthly income from rent is higher than the exemption ceiling, but does not exceed twice this ceiling, the exemption must be calculated as follows: the amount of the exemption ceiling is subtracted from the amount of the monthly income, and the “excess amount” is obtained. The excess amount is subtracted from the ceiling amount – you get the exempt amount. The monthly income minus the exempt amount is the taxable income. The tax is according to your tax brackets.
A quick and theoretical illustration – let’s say the rent is NIS 6,000 and that the ceiling is NIS 5,470 – the excess amount is NIS 530. The exempt amount (the ceiling minus the excess amount) is NIS 4,940 – you have to pay tax on the difference – NIS 1,060. It can reach NIS 400 and more. That is, there will be landlords who would prefer to keep the rent at 5,470 and not raise it towards 6,000 shekels, above this amount, it seems that the landlords are no longer in excess.
In fact, the legislator established this formula so that there would be a motivation not to raise the rent beyond the limit. And there is another route – 10% tax on all rent. There is also a track for those who are “in business”, meaning that the rental is already a business – according to the taxpayer’s tax rate.
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