Can I deduct mortgage interest and repair costs from my Israeli rental income?

Only under Track B, the net income route under Section 121 of the Income Tax Ordinance. Allowable deductions include mortgage interest, depreciation at 2% per year of the building's cost component, management and letting agency fees, insurance, and maintenance costs. Track A (10% flat) does not allow any deductions. If your mortgage interest and depreciation together exceed roughly one-third of gross rent, Track B will typically produce a lower tax bill despite the higher minimum 31% marginal rate.