Israel Tax Authority Pushes to Tax Rental Income From First Shekel
The Israel Tax Authority is reviving a proposal to tax all rental income from the first shekel while creating a mandatory landlord registry. The Ministry of Finance is debating potential purchase tax cuts for investors as part of the 2027 state budget preparations.
The Israel Tax Authority is set to revive its controversial initiative to impose a tax from the first shekel on rental income, eliminating the current exemption threshold of approximately 5,600 NIS, as part of the upcoming Arrangements Law. Alongside the tax proposal, authorities plan to establish a mandatory registry of rental properties requiring all landlords to report their rental agreements.
These proposals, which have been repeatedly blocked by political actors in the past, aim to crack down on the shadow economy within the real estate sector. According to tax authorities, billions of shekels currently circulate untaxed in the rental market, leaving significant loopholes that officials seek to close.
Proposed Purchase Tax Reductions
To soften the blow of the new rental tax, the Ministry of Finance has floated a potential trade-off during recent discussions by the "Committee of Three"—a special task force shaping tax reforms and anti-black-money measures for the 2027 state budget and Arrangements Law. The committee is led by Budget Director Mehran Frozanfar, Chief Economist Dr. Shmuel Abramzon, and Tax Authority Director Shay Aharonovich.
Under consideration is a reduction in purchase tax for real estate investors in exchange for universal rental income taxation. Current temporary regulations set the purchase tax on additional properties at 8% for the first bracket up to 6,055,070 NIS and 10% for any amount above that threshold. While these rates were temporarily extended through February, uncertainty surrounds future policy.
Fiscal Impact and Debates
Despite the proposed compromise, sources indicate that key officials including Frozanfar, Abramzon, and Aharonovich remain unenthusiastic about linking the tax overhaul directly to purchase tax cuts. Proponents of lowering purchase taxes argue it could stimulate transaction volumes and boost state revenue through increased market activity, whereas opponents warn against offering concessions while home prices fluctuate.
Tax Authority Director Shay Aharonovich estimates that imposing a tax from the first shekel and enforcing mandatory reporting could generate between 2 billion and 5 billion NIS annually for state coffers. The upcoming government will ultimately decide whether to advance these sweeping real estate tax reforms.
