Taxation of Real Estate – A Practical Guide for Property and Apartment Owners
In recent years, the Israeli Tax Authority has significantly intensified its enforcement efforts against property owners who failed to report rental income. This marks a clear shift from the previous era of relatively limited enforcement in this area.
Obligation to Pay Tax on Rental Income
Any property owner who rents out real estate is obligated to pay income tax on the rental income, whether the property is located in Israel or abroad (e.g., Greece, Spain, Cyprus, or elsewhere). An exemption applies only when the property is located in Israel and the total monthly rental income from all properties remains below the statutory exemption threshold.
For more information on rental taxation tracks, click here.
Voluntary Disclosure Procedure – Temporary Order 2025
On August 25, 2025, the Tax Authority published the Voluntary Disclosure Procedure – Temporary Order 2025. This framework offers taxpayers who failed to report their income an opportunity to rectify their reporting, pay the outstanding tax liability (including interest and indexation), and in return, receive immunity from criminal prosecution.
As part of this process, our firm will conduct a comprehensive tax analysis on your behalf and determine the most beneficial course of action—whether through retroactive reporting or by submitting a voluntary disclosure request under the new procedure.
The new procedure includes two main tracks:
- The Green Track – a simplified and expedited process available in cases that meet specific criteria (not subject to the taxpayer’s choice). Eligible cases include:
- Financial income – only if the capital of the funds as of 31.12.14 was less than NIS 4,000,000 and during the 10 years prior to the request, there were no significant deposits/transfers of funds into the financial account.
- Rental income in Israel/abroad – when the total annual rental income did not exceed NIS 250,000.
- Digital assets – when the total income for the entire disclosure period did not exceed NIS 500,000 and the fair value of the digital assets as of 31.12.24 does not exceed NIS 1,500,000.
2. The Regular Track – applicable when the conditions of the Green Track are not met. In such cases, the taxpayer will receive confirmation from the Investigations Department to initiate the voluntary disclosure process and will be required to engage in assessment discussions with the tax assessor.
Important to note: Unlike previous procedures that allowed anonymous initiation, the new procedure requires disclosure of the taxpayer’s identity at the very outset—before any agreement is reached with the Tax Authority regarding the tax settlement.
For more details on the voluntary disclosure process and its advantages, click here.
Taxation of Apartments Abroad – Important Notes
Property owners abroad should be aware: not only is rental income taxable in Israel, but so are capital gains from the sale of foreign property. It is essential to review the provisions of any applicable double taxation treaty to determine where tax should be paid first and to ensure that a foreign tax credit will be granted to avoid double taxation.
Classification of Real Estate Income – Passive or Business?
It is also important to note that owning multiple properties and/or engaging in property purchases for renovation and resale may be classified as business activity rather than passive investment. Such classification has significant implications for the applicable tax liability.
For a detailed explanation of the tests for classifying income as business – click here.
Case Study: Consequences of Non-Reporting of Rental Income
For example, on May 10, 2023, the Tax Authority announced that a couple from Hod Hasharon, suspected of concealing approximately NIS 1.5 million in rental income over the past decade, had been released under restrictive conditions following an investigation.
The suspicion arose as part of the expansion of the taxpayer network and analysis of the Tax Authority’s databases. As a result, the couple was sent a form to report all the income and assets they rent out.
Although the couple submitted a disclosure form in June 2022, the Tax Authority suspected the report was incomplete. The case was transferred to the Central Investigations Unit, which discovered that the couple had reported only one rental unit while in fact leasing several. A review of their bank accounts revealed deposits totaling approximately NIS 1.5 million since 2013, none of which had been reported.
After the couple failed to respond to repeated requests for declarations and payment, a formal investigation was launched. This included a search of their residence and the collection of tenant testimonies.
The court ultimately released the couple under strict conditions: a personal guarantee of NIS 300,000, a third-party guarantee of NIS 150,000, and a cash deposit or bank check of NIS 25,000 – per suspect.
The key takeaway: This case underscores the critical importance of accurate and complete reporting to the Tax Authority. Failure to report income – even partially – can result in severe legal consequences, substantial financial penalties, and even criminal charges.
How Can Our Office Assist You?
Nimrod Yaron & Co. specializes in handling voluntary disclosure procedures and has extensive expertise in resolving cases of unreported rental income. Our team provides end-to-end support, including precise tax calculations, identifying the most suitable disclosure track, preparing and submitting the disclosure request, representing clients in negotiations with the Tax Authority, and guiding them through every stage until the final assessment agreement is reached.
To schedule an initial consultation with a representative from our office, click here.
Q&A
Who is eligible for the voluntary disclosure procedure?
The procedure is intended for any individual who has taxable income that was not reported and on which no tax was paid in Israel, whether the income originated in Israel or abroad. It may also apply to individuals with relatively modest income.
Which types of income are excluded from the procedure?
The procedure does not apply to income derived from illegal activity, as the Tax Authority does not seek to legitimize unlawful conduct.
What is the difference between the Green Track and the Regular Track?
The Green Track is a simplified process designed for cases involving relatively low income and allows for the submission of a report or amended report directly to the Tax Authority. The Regular Track applies in all other cases and requires assessment discussions with the Tax Authority, ultimately leading to a formal agreement.
Can voluntary disclosure be submitted anonymously?
No. Under the new procedure, it is not possible to initiate the process anonymously.
What are the alternatives to the voluntary disclosure procedure?
It is possible to file reports for all years in which income was not reported. However, it is important to note that this option does not provide criminal immunity.
Does the statute of limitations apply to cases of unreported income?
No. As long as the income has not been reported, the statute of limitations does not apply. In practice, the Tax Authority typically addresses the current year plus the preceding ten years, which corresponds to the criminal statute of limitations period.
Can the Tax Authority discover foreign income if I do not report it voluntarily?
Yes. Through international information exchange agreements with many foreign tax authorities, the Israeli Tax Authority receives ongoing data regarding the activities of Israeli residents. These agreements include the OECD’s CRS, the U.S. FATCA, and others. Additionally, the Tax Authority is actively working to obtain information from cryptocurrency exchanges to identify unreported crypto income.
Is there an exemption for rental income?
Yes. An individual renting out one or more residential apartments may be entitled to a full exemption from tax on rental income, provided that the total monthly rental income does not exceed NIS 5,654 (as of 2025).
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