Renting Out Israeli Property and Your US Taxes
Renting Out Israeli Property and Your US Taxes
Many Americans who buy in Israel plan to rent the property out for part or all of the year, whether as a long-term lease, a furnished apartment or a home used by family between tenants. From a US perspective, that rent is generally part of your worldwide income. At the same time, Israel may tax it under its own rules. The interaction between the two systems is manageable, but only if you understand the main concepts and keep careful records. This guide describes those concepts in qualitative terms. It is not tax advice, and your US CPA and Israeli tax advisor should shape your actual approach.
Rent as Worldwide Income
US citizens and residents generally report income from all sources, including rent from abroad. The rent is converted to dollars for reporting, which means you need a consistent method for tracking amounts received in shekels.
Rental activity is typically reported on the schedule used for rental real estate, with income on one side and allowable expenses on the other.
Expenses You Should Track
Common categories include mortgage interest, municipal tax where you pay it, building committee fees, insurance, repairs, property management and travel directly connected to managing the property. Whether each item is deductible, and to what extent, is a question for your CPA.
Keep invoices in an organized folder, note what each payment was for and record the shekel amount and the date. A simple shared spreadsheet with your property manager, updated monthly, is usually enough to keep everything reconcilable at year end.
Mortgage interest statements from the Israeli bank
Management and maintenance invoices
Insurance policies and premiums
Records of personal use days, if any
Depreciation Under US Rules
US tax rules allow depreciation of rental property, including foreign residential property, over a set recovery period. Depreciation reduces taxable rental income each year but can affect the calculation when you sell. The basis for depreciation, including how the land portion is separated, needs professional attention.
Avoiding Double Taxation
If you pay Israeli tax on the rent, the United States may allow a foreign tax credit against the US tax on the same income. The credit is subject to limitations, and the way Israel taxes the rent can influence how much credit is available.
This is why your choice of Israeli tax route for rental income should be discussed with both your Israeli advisor and your US CPA before you commit. A related guide on this site explains the Israeli options in general terms.
Personal Use and Mixed Use
If you or your family use the apartment during holidays and rent it out at other times, the US rules on mixed personal and rental use may limit certain deductions. Keeping a calendar of who used the property, and when, is a simple habit that saves a lot of reconstruction later. Families who lend the apartment to relatives free of charge should also mention this to their CPA, since use by family members can be treated as personal use even when the owner is not there.
Short-Term Furnished Rentals
Short-term rentals raise additional questions in both countries, including how the income is characterized and whether local licensing or municipal rules apply. Building bylaws may also restrict such use. Check these points with your lawyer before committing to a short-term strategy. Short-term hosting also brings more transactions, platform statements and cleaning or management invoices, all of which need to be kept in order for reporting in both countries.
Working With Your Advisors
Choose a US CPA who has handled Israeli rentals before and introduce them to your Israeli tax advisor. Share your lease, loan documents and expense records at the end of each year. We help owners with the property side, not with tax filings, and nothing here should be taken as advice for your situation.
Frequently asked questions
Is rent from Israel taxable in the United States?
For US citizens and residents it is generally reportable, with possible credits for Israeli tax paid. Your CPA can explain how this applies to you.
Can I deduct my trips to Israel?
Travel primarily for managing the rental may be deductible in some cases, while personal travel is not. The line depends on the facts, so ask your CPA.
What exchange rate should I use?
There are accepted methods for converting foreign income. Use one consistently and confirm the approach with your CPA.
Do I need a property manager for tax reasons?
Not for tax reasons as such, but a good manager provides organized records of rent and expenses, which makes reporting in both countries much easier.
Elkayam Group
Elkayam Group, registered as Kobi Elkayam Real Estate Ltd, is headquartered on Rival Street 37 in Tel Aviv and is led by the third generation of a family that has been in industry since the forties. Its activity covers development, urban renewal, TAMA 38, pinui-binui and combination deals, with partner companies behind it that can provide guarantees. The team works in Hebrew, English and French and understands the practical needs of American owners who rent from abroad.
Thinking of renting out your Israeli home? Contact us to discuss the property side and the professionals you will need.
+972-53-658-4252 · support@kobielkayamrealestateltd.com · Rival St 37, Tel Aviv