New Tax Breaks Could Mean New Rentals for Israelis

Yoo towers in Tel Aviv. (Flash 90)

American-style apartments for rental projects are rare in Israel, where nearly all apartments for rent are owned by people who live elsewhere and rent out their homes privately. That could change, however, with a new program to be proposed by Economy Minister Eli Cohen that would promote tax breaks for developers to build apartments for rent.

There is actually a law on the books that provides such tax breaks, albeit at a much lower rate. According to the law, real estate developers, who generally pay 24-percent tax on the sales of apartments, get a 5-percent break if 50 percent of apartments in a project are put up for rent for a period of at least five years. Few developers take advantage of this, however, claiming that the benefits are not sufficient for the risk they are taking in renting instead of selling.

The changes proposed by Cohen would significantly increase the tax benefits. Under the new plan, overall taxes on sales would fall to 18 percent if 25 percent of the apartments in a building were rentals, and the tax rate would fall to 9 percent if half the apartments are put up for rent for a period of ten years. If 75 percent of the apartments are rented out, taxes could fall to as low as 5 percent.

Cohen plans to present the plan to the Ministerial Law Committee in the coming weeks. So far, support for the plan has been enthusiastic both among MKs and among real estate developers who have reviewed it.