Israel Property Tax 2026: Arnona, Land Tax, and STR Rules That Will Rewrite The Map

From 2026, owning property in Israel will not feel the same. Jerusalem’s Arnona overhaul, the return of a national land tax, and tighter short term rental rules are not small tweaks. They quietly redraw yield math, holding costs, and strategy for anyone serious about Israel.

Quick Take

• Jerusalem is shifting Arnona in a way that can raise bills for many older apartments by roughly a third, which eats directly into net yield.
• A new national land tax on vacant or underused land forces “sit and wait” owners to either build, sell, or accept a permanent drag on returns.
• Short term rental regulation is moving closer to “small hotel business” than casual side income, especially in Tel Aviv and Jerusalem.
• The investors who win will be those who run the numbers again, not those who keep using 2023 spreadsheets in a 2026 tax world.

What is actually changing in Israel’s property tax world from 2026?

From 2026, three levers move at once: many municipalities, led by Jerusalem, are reshaping Arnona brackets; the state is bringing back a property or land tax on vacant and underbuilt plots; and short term rentals are moving under a dedicated hospitality law with licensing and tighter conditions. Together, they shift net returns, not just line items.

Israel is not becoming anti-investor. It is becoming more explicit. Local authorities want more stable revenue and less cross-subsidy from commercial to residential. The state wants idle land pushed into housing supply. Cities want short term rentals to behave like real hospitality businesses, not unregulated shadow hotels.

If you care about Israel and want to invest here with clear eyes, you cannot treat these changes as background noise. They are the new rules of the board.

How will Jerusalem’s Arnona overhaul really hit your apartment numbers?

Jerusalem’s plan is simple on paper and brutal in Excel. By collapsing cheaper zones and old classifications, Arnona on many pre-2020 apartments is expected to jump roughly up to 39 percent for smaller units and around 22 percent for larger ones. That turns “nice cash flow” into “tight margin” surprisingly fast.

Picture a small 70 square meter apartment in Jerusalem that currently pays about 4,000 shekels per year in Arnona.

With a 39 percent uplift, that bill becomes: 4,000 × 1.39 = 5,560 shekels per year.

Assume you rent it long term for 5,500 shekels a month, or 66,000 shekels a year. Ignore all other costs for a moment and treat Arnona as the only expense, just to isolate the effect.

Before reform: Net after Arnona = 66,000 − 4,000 = 62,000.

After reform: Net after Arnona = 66,000 − 5,560 = 60,440.

If the apartment is worth 1.7 million shekels, effective “Arnona-adjusted” yield falls like this: before, 62,000 ÷ 1,700,000 is about 3.65 percent; after, 60,440 ÷ 1,700,000 is about 3.55 percent.

That 0.1 percentage point drop seems small, but you are losing about 1,560 shekels of net cash flow every year for as long as the regime stays. Multiply that across a 10-property portfolio and the impact is no longer cosmetic.

Now look at a larger 110 square meter apartment that pays 8,000 shekels Arnona, with a 22 percent uplift to 9,760 shekels.

The extra cost is 1,760 shekels per year. On a 3 million shekel asset with 9,000 shekels monthly rent, or 108,000 yearly, your Arnona-adjusted yield moves roughly from 3.33 percent to 3.25 percent.

For high-leverage buyers, this matters. That extra Arnona can swallow part of your safety margin over mortgage payments.

How does this compare with a city like Tel Aviv right now?

In Tel Aviv, most of the discussion today is about the automatic annual indexation of Arnona and occasional targeted uplifts, not a structural overhaul. So assume a more modest 2 percent increase per year on similar baseline Arnona values, rather than a one-time 22–39 percent jump.

The table below gives a simplified comparison for investors thinking Jerusalem versus Tel Aviv, using the same small-apartment example. All numbers are illustrative estimates.

This is not “Jerusalem bad, Tel Aviv good”. It is “Jerusalem requires sharper underwriting now”. If you are pro-Israel and bullish on Jerusalem’s long term story, higher Arnona is not a reason to run. It is a reason to buy smarter and negotiate harder.

What does the new land tax mean for people sitting on plots and air rights?

A revived property or land tax at around 1.5 percent of market value on vacant or underused land flips the math for anyone who likes to sit and wait. Instead of paying almost nothing while prices rise, you now pay a recurring charge that forces you to either build, partner, or sell sooner.

Take a simple case. You own a plot or a property with significant unused rights worth 2 million shekels on the open market, but you have no near-term plan to build.

The new land tax is 2,000,000 × 1.5 percent, which is 30,000 shekels per year, every year. That is 2,500 shekels per month just to stand still.

If prices grow 3 percent per year, your paper gain in year one is 60,000 shekels. After tax, you keep 30,000. Your real appreciation is effectively halved by your holding cost.

Now look at it as a yield threshold. You must generate at least 1.5 percent annual return from the land, through appreciation, interim uses, or partial disposals, merely to break even on the tax. Anything less and the asset is dragging your portfolio down.

Scale it up. On 5 million shekels of idle land, 1.5 percent is 75,000 shekels per year. Over 5 years, that is 375,000 shekels paid, assuming no change in value and no indexation.

In a pro-Israel view, this is not a punishment. It is a nudge that says: if you hold scarce Israeli land, use it. Either bring new housing, partner with a developer, or hand it to someone who will.

For serious investors, the move should trigger a full review of bank land inventory held for later, family plots that have sat untouched for a decade, and air-rights-rich buildings where urban renewal projects are being postponed without good reason.

You do not need to panic sell. You do need a plan.

How do short term rental rules shift the game for Tel Aviv and Jerusalem?

A dedicated hospitality law for short term rentals moves your Airbnb-style apartment closer to a regulated micro-hotel. Licensing, co-owner consent in some cases, time limits, and safety standards reduce the easy arbitrage between long term rent and tourist rent. Short term rental returns will still exist, but they will belong to people who treat this as a business, not a side hustle.

Assume a two-bedroom in central Tel Aviv that could either be rented long term for 9,000 shekels per month, or rented short term at an average of 650 shekels per night, 65 percent occupied.

Short term gross revenue looks attractive. Multiply 650 by 0.65 and by 365, and you get about 154,000 shekels per year.

Long term rent gives 9,000 times 12, which is 108,000 shekels per year.

On paper, short term rent wins by 46,000 shekels. But start adding the 2026 reality.

Estimate additional annual short term rental specific costs. Licensing, inspections, and legal setup might be 5,000 to 10,000 shekels amortized per year. Building or neighbor consent friction can ban or restrict your ability to operate at all. Higher management, cleaning, and utilities can easily be 25 to 35 percent of revenue.

Take a middle scenario. Thirty percent operating cost on 154,000 is 46,200 shekels, plus 7,500 yearly for compliance and administration. Net short term rental income is about 100,300 shekels per year.

Suddenly, the 108,000 from a plain long term tenant looks very competitive, especially when you price in vacancy risk, regulatory uncertainty, and your personal time.

In Jerusalem’s more conservative neighborhoods, building rules or community pressures can further tilt the scale toward stable, long term rentals that align with local norms and avoid constant regulatory friction.

If you love Israel, this is a healthier equilibrium. Neighborhoods are not hollowed out by unregulated tourist stock, and serious short term rental operators can still earn, but by stepping up to proper standards.

As a pro-Israel investor, how can you adapt instead of retreating?

You adapt by treating 2026 as a reset of your underwriting, not as a reason to exit Israel. That means re-running every major assumption: Arnona levels, land holding costs, and short term rental feasibility. Then you shift your strategy toward assets and cities that still offer resilient yields after these changes, not just before them.

Here is a practical checklist you can start on today.

What checklist can you use to adjust your Israel property strategy for 2026?

The checklist is a series of simple but sharp reviews of Arnona, exposure type, land, short term rentals, city mix, pricing, and professional support. Working through it forces every asset in your portfolio to justify itself under the new rules, rather than coasting on pre-2026 assumptions.

• 1. Reprice Arnona into your yield models. Use projected post-reform Arnona, not last year’s bill, and stress test with a further 10 percent uplift just in case.
• 2. Tag every asset by type of exposure. Mark each as pure apartment, short term rental heavy, land bank, urban renewal potential, or mixed, and see where Arnona, land tax, or short term rental rules bite hardest.
• 3. Audit land and unused rights. List every plot or building with dormant rights, estimate the 1.5 percent land tax, and ask whether to build, partner, subdivide, or sell.
• 4. Reevaluate short term versus long term for each unit. Run real short term rental numbers including management, cleaning, and compliance, and if long term rent gets you within 10 to 15 percent of short term net income, consider shifting.
• 5. Shift your city and neighborhood mix, not your patriotism. Some submarkets will absorb Arnona better thanks to higher rents, and others become less attractive unless you have a unique angle.
• 6. Negotiate purchases as if sellers are still using old spreadsheets. When sellers price as if Arnona and land tax do not exist, you have room to bring these numbers to the table and price risk into your offers.
• 7. Align with professionals who understand the new landscape. Lawyers, tax advisers, and agents who track 2026 reforms in detail are now a necessity, and English-speaking investors especially should not fly blind.

Which key terms do you actually need to understand here?

You do not need a law degree. You just need a tight grip on a few core terms that keep showing up when you talk about property tax and regulation in Israel.

• Arnona – Municipal property tax paid annually to the local authority, usually based on size, use, and zoning, not just property value.
• Land tax or property tax on vacant land – A national-level tax charged as a percentage of the value of idle or underbuilt land, meant to discourage hoarding and push development.
• Short term rental – Renting out a property for short stays, often to tourists or business travelers, usually measured in nights rather than months.
• Yield – Annual net income divided by the property’s value, typically expressed as a percentage, used to compare property investments.
• Air rights or building rights – The legal ability to build additional floors or area on a site, which can carry significant value even before construction.
• Urban renewal – Programs that replace old buildings with new ones, often with added rights and better infrastructure, in return for rehousing and approvals.

How were these numbers and insights put together?

The figures here are illustrative calculations built from the directional changes described: roughly 39 percent Arnona uplift for some smaller Jerusalem apartments, around 22 percent for some larger ones, and a land tax near 1.5 percent of value for vacant or underused land, plus a shift toward stricter short term rental regulation.

From there, the math is transparent and simple. First, pick realistic but hypothetical property values and rents for Jerusalem and Tel Aviv apartments. Then apply the new Arnona ratios and compare Arnona-adjusted yields before and after.

Next, use standard percentage calculations to show how a 1.5 percent land tax scales at 2, 5, and more million shekels of land value. Finally, model short term versus long term rent using occupancy, nightly rate, and operating cost assumptions that many investors already recognize.

The point is not to predict the exact Arnona bill on your specific unit. The point is to show the direction and magnitude of impact, so you re-run your own numbers with your own data instead of relying on pre-2026 rules of thumb.

What should you actually do next?

If you care about Israel and you own or plan to own property here, 2026 is not the year to be passive. It is the year to pick three actions and execute them.

Rebuild your spreadsheet assumptions with 2026 Arnona, land tax, and short term rental rules. Decide which assets you would buy again under the new rules and which you would not. Start repositioning your portfolio so that every unit, plot, or project earns its place.

Israel is still one of the most compelling long term real estate stories on earth. The new rules do not change that. They simply separate buyers who read headlines from builders who read the fine print.

Too Long; Didn’t Read

• Jerusalem’s Arnona overhaul can raise tax on many apartments by around 22 to 39 percent, shaving meaningful points off net yield if you do not reprice it properly.
• A revived land tax near 1.5 percent on vacant or underused land punishes do nothing strategies and forces owners to build, partner, or sell faster.
• Short term rentals are being pushed into a real hospitality framework with licensing, standards, and co-owner consent, making plain long term rent relatively more attractive in some buildings.
• The winners will be pro-Israel investors who re-run their models, stress test deals with the new costs, and shift from casual speculation to disciplined, informed ownership.
• The way you respond to these changes will shape how your own future in Israel looks, from cash flow to community, for many years ahead.