Israel Property Depreciation (Hestola) Calculator 2025
Calculate Israeli property depreciation (hestola) for rental properties. Residential buildings depreciate at 2 percent per year on construction cost (not land). Compute annual deduction, accumulated depreciation, and book value.
Enter the building construction cost (exclude land), years you have already owned the property, and see your annual depreciation deduction and remaining book value.
Annual depreciation deduction
--
Building cost
--
Accumulated depreciation
--
Current book value
--
Years remaining at 2 percent
--
Your breakdown
Updates live as you type
Item
Amount
Why depreciation matters for Israeli rental property investors
The 2% annual depreciation deduction is one of the most reliable tax benefits available to Israeli landlords who choose the marginal rate route. It reduces taxable rental income by a fixed amount every year without requiring any cash outlay. For a building worth 1,000,000 ILS, the annual deduction is 20,000 ILS. If the landlord is in the 31% bracket, this saves about 6,200 ILS in tax per year, or roughly 310,000 ILS over the full 50-year depreciation life. That is a substantial benefit that compounds over a long holding period.
The trade-off: depreciation and future capital gains
Every shekel of depreciation claimed today reduces your cost basis at sale. When you eventually sell, the Israeli capital gains (Mas Shevach) is calculated on the sale price minus the inflation-adjusted cost basis, where the cost basis has been reduced by accumulated depreciation. This means the depreciation benefit is partly deferred rather than permanent: you get the tax saving now, but pay more capital gains tax later. Whether that trade-off is worthwhile depends on your holding period, expected future tax rates, and the time value of money.
Commercial vs residential depreciation rates in Israel
This calculator uses the 2% rate applicable to residential buildings. Commercial and industrial properties may have different rates depending on the type of building and its classification. Hotels, office buildings, and industrial facilities often have higher depreciation rates than residential properties. If you own non-residential investment property, verify the applicable rate with the Income Tax Ordinance depreciation tables or consult a licensed accountant (roeh heshbon) or tax adviser (yoetz mas).
Frequently asked questions
What is the Israeli property depreciation (hestola) rate for residential buildings?
Israeli tax law allows a straight-line depreciation deduction of 2 percent per year on the construction cost (not land value) of residential rental buildings. This means a property with a building component of 1,000,000 ILS generates a 20,000 ILS annual non-cash deduction. Over 50 years the entire building cost is depreciated. Commercial buildings may have different rates. The rate has been 2 percent for residential property for many years and is set in regulations under the Income Tax Ordinance.
How do I separate land value from building value for depreciation purposes?
The building construction cost (not the land value) is the base for depreciation in Israel. A common approach is to use the purchase contract breakdown if the seller specified building and land components. Alternatively, you can use the Israel Land Authority (Rashut Hakarka) valuations, a licensed appraiser (shaman), or the municipal arnona records which sometimes separate the components. The Israel Tax Authority may challenge an allocation they consider unrealistic, so documentation is important.
Does accumulated depreciation affect the capital gains calculation when I sell the property?
Yes. In Israel, the cost basis for calculating the real gain at sale is reduced by the total depreciation you have claimed over the holding period. If you purchased a building component for 1,000,000 ILS and claimed 200,000 ILS in depreciation over 10 years, your adjusted cost basis is 800,000 ILS. A higher sale price will therefore result in a larger taxable gain (Mas Shevach). This is the standard worldwide treatment: depreciation shifts tax from today to the sale date.
Is depreciation allowed under the 10 percent flat tax route for rental income?
No. Depreciation is only claimable under the marginal rate route (taxing net rental income at ordinary progressive rates). The 10 percent flat tax route taxes gross rental income with no deductions of any kind allowed. This is one of the key factors in choosing between the two routes: if your building depreciation and mortgage interest together exceed 10 percent of gross rent, the marginal route with full deductions often produces a lower tax bill.