Guide to Kentucky’s Short-Term Rental Regulations

More and more people come to Kentucky every year to enjoy the picturesque nature and historic landmarks. In 2022, tourism had an estimated $12.9 billion impact on the local economy. The short-term rental market is thriving as property investors rush to meet the growing demand for lodgings. However, the Bluegrass state has many restrictions and guidelines you need to mind when setting up a business there. Our guide to Kentucky’s short-term rental regulations walks you through all the different laws, tax requirements, and potential issues. Disclaimer: Our guide is intended for informational purposes only and doesn’t constitute legal advice. For guidance on specific cases, please consult a property lawyer.

Short-term rental regulations in Kentucky

Kentucky is an unusual case. Unlike many other states, it allows cities and counties to classify short-term rentals as commercial entities. The state loosely defines them as ‘hotels’ or ‘an establishment that provides lodging and usually meals, entertainment, and various personal services for the public.” As a result, local governments have more power to restrict and regulate short-term rentals than in some other states. There may also be tax implications as commercial properties are generally subject to higher rates than residential ones. In Kentucky, the state also allows local governments to determine what length of stay qualifies as ‘short term’. The margins are wide as officials note, “whether residential rentals may be for one month, six months, or more, […] that’s not for us to decide.”

Tax requirements for Kentucky short-term rentals

If you operate a short-term rental property in Kentucky, you’re subject to:

• Income tax
• Sales tax
• Transient room tax
• Local taxes
• Property tax

Any revenue from your short-term rental activities counts as income. You must make quarterly estimated payments to the IRS if you expect to earn over $1000 annually. Kentucky State also applies a 4.5% income tax rate but allows for itemized deductions. As a business owner, you’re responsible for collecting 6% sales tax from your guests. Sometimes, platforms like Airbnb and VRBO remit these charges on your behalf so check their guidelines. You must collect a 1% transient room tax if guests use your property for 30 days or less. Again, online platforms may automatically apply these rates to bookings. Individual counties determine the amount of property tax you owe. The percentage is based on the local tax rate, your assessed value, and whether you count as a residence or a commercial entity.

Popular Kentucky destinations with short-term rental regulations

Kentucky has a patchwork of different short-term rental regulations that apply at the county and city level. With that in mind, let’s explore the laws and requirements for the state’s top locations. Note: All the following places define a short-term rental as a property you rent for 29 days or less.

Louisville

The Louisville Tourism Board boasts that the city is just a day’s drive from most of the US population. Many visitors come to enjoy the sights or make a pit stop on a longer journey, making it a prime location for short-term rentals. Louisville requires short-term rental operators to register their businesses and pay an annual fee of $250. There are also strict zoning laws. You can check the Louisville interactive map to see whether you have the right to operate your business. In some restricted areas, you can apply for a Conditional Use Permit (CUP) for your property. Local citizens have the right to approve or refuse your request. You must be at least 600 feet from another property with a CUP to avoid oversaturation.

Lexington

Famous for its bourbon and horses, Lexington offers visitors a unique kind of holiday. That’s why the short-term rental market has boomed in recent years. To control the growth of tourism, Lexington has begun to regulate properties more carefully. They recently introduced new classifications and requirements for short-term rental operators. Now Lexington recognizes two types of business:

• Hosted: The property is your primary residence and you stay there or another unit on the land when you host guests. You must provide evidence that you live there full-time such as a valid driver’s license or voter registration.

• Unhosted: The property is a secondary residence. If you’re only the manager, you need a sworn affidavit from the owner.

You have to obtain a permit from the Division of Planning. The annual fee is $200 for the first unit and $100 for each additional one. License holders are responsible for making sure properties meet standards. These focus on safety and hygiene with notes on septic tanks, fire extinguishers, and carbon monoxide filters.

City of Bowling Green

Bowling Green is popular with tourists both for its attractions and its proximity to Kentucky’s national parks. Both Mammoth Cave and Daniel Boone Forest are a short drive away. There are four types of short-term rental with different requirements:

Type of STR	Owner occupied?	Guest limit	Requirements
Boarding House	No	10 people	Compliance with the Kentucky Residential Code
Bed and breakfast homes	Yes	5 people	Illuminated corridors and hallways A minimum of two ground-floor exits Self-closing doors
Bed and breakfast inns	Yes	6 bedrooms	A minimum of one roll in style of shower Illuminated corridors and hallways A minimum of two ground-floor exits Self-closing doors
Lodging houses	Yes	5 bedrooms	Illuminated corridors and hallways A minimum of two ground-floor exits Self-closing doors Distance of 10 feet from other properties or one hour fire-rated protection

All short-term rentals must have smoke alarms installed in the sleeping areas and identification that’s visible from the street. You also have to arrange an inspection and pay the $45 annual fee for a permit. If the city has classified your property as a residential apartment, the entire place counts as one unit. You may not host more than 10 guests at one time.

Franklin County

Due to its convenient location and beautiful surroundings, Franklin County attracts a large number of tourists. Officials introduced short-term rental regulations back in 2020. Franklin County requires you to register your properties and obtain a business license. You must apply for these documents, even if you only operate your business a few days a year. On top of the state tax requirements, the county also imposes a 4% County Transient Room Tax and a 2% Fine Arts Tax. Be aware that online platforms don’t normally apply these when they take bookings.

Frankfort

As the biggest city in Franklin County and the state capital, Frankfort is especially popular with visitors. It’s no wonder the number of short-term rentals there jumped 64% in 2022. Frankfort has similar regulations to Franklin County. Short-term rental operators have to register their properties and get a business license. The resource page also states you must reregister by April 30th every year and pay $20 to arrange an inspection. Like the county, Frankfort expects you to remit the 4% City Transient Room Tax and 2% Fine Arts Tax.

Boone County

As Boone County sits on the borders of Ohio and Indiana, it gets a lot of traffic. It’s a lucrative spot for anyone looking to invest in short-term rental properties. In unincorporated Boone County, you can only operate your business in specific areas. You’re required to get both a short-term rental permit and a zoning permit before you accept any bookings. Many places also expect you to apply for a CUP from the Boone County Board of Adjustments. One noteworthy restriction is that short-term rental properties can’t be within 1,000 feet of each other. For reference, that’s less than a five-minute walk. Permits cost $300 for first-time applications and $200 for renewals. You must submit an inspection form, floor plan, contact details, and evidence of $1 million in insurance.

Florence

Despite being a home-rule city, Florence follows many of Boone County’s regulations. Short-term rentals must be at least 1000 feet apart and residential areas usually require a CUP. However, Florence doesn’t require a zoning permit. You just need to secure a short-term rental permit for $500 and a minimum of $1 million in coverage. Properties must undergo an inspection before you can rent them out to guests. You must display your contact information so it’s visible to the street. Somewhat paradoxically, you shouldn’t advertise or indicate that you’re running a short-term rental business to passers-by.

Covington

Just across the river from Cincinnati, the city of Covington is a great spot for visitors to both Kentucky and Ohio. However, the new restrictions mean it’s a better investment for owners looking to rent out parts of their homes rather than professional property managers. Covington recently lifted a ban on new short-term rental licenses after issues with businesses operating illegally and causing disturbances. They’ve introduced a new set of tighter regulations and zoning laws. Now, Covington requires an occupational business license and a rental license for all short-term rental property. You may only have two units per building in the case of apartment blocks. What’s more, you can only have up to four non-owner-occupied properties. There are also limits on the number of non-owner occupied rentals that can operate within the city limits. The total is 150 for the entire of Covington with more specific caps for historic areas.

Resources

• Supreme Court of Kentucky, Hensley vs Gadd: Final Date
• Kentucky Department of Revenue, Individual Income Tax
• Kentucky Department of Revenue, Sales and Excise Taxes
• Kentucky Department of Revenue, Transient Room Tax
• Kentucky Department of Revenue, Property Tax Rates
• Louisville KY, Short-term rental information
• Lexington KY, Short-Term Rentals (STRs)
• City of Bowling Green KY, Short-term rental guide
• Visit Frankfort, Resources for short-term rentals
• Frankfort KY, Short-term rental application
• Boone County KY, Short-term rental units
• Florence KY, Short-Term Rentals
• Covington KY, City to issue new short-term rental licenses