State of Kentucky Short-Term Rental Regulations

From the rolling bluegrass pastures to the lively cities, the Bluegrass State attracts visitors eager to experience its unique culture and natural beauty. Renting your Kentucky property as a short-term rental allows you to unlock its income potential when not occupied. However, Kentucky's mosaic of local ordinances governing Airbnb rentals requires diligent research. This comprehensive guide covers key regulations, licensing, taxes, safety codes, penalties, and tips for successfully operating compliant short-term rentals in Kentucky.

Defining Short Term Rentals in Kentucky

Let's examine what constitutes a short-term rental in the state:

Rental Period Length

While no standard statewide rental period exists, popular tourist locales define short-term rentals as:

• Louisville: Less than 30 consecutive days
• Lexington: Less than 30 continuous days 
• Bowling Green: Fewer than 30 days

Some cities impose tighter limits, so verify local ordinances.

Types of Rentals

Kentucky short-term rentals include:

• Houses, condos, apartments, cabins  
• Private or shared rooms
• Corporate housing units
• RVs, campers, houseboats

Regulations differ for owner-occupied versus non-owner-occupied properties.

Geographic Oversight

Several cities have enacted their own ordinances, while unincorporated areas fall under county-level oversight. Research both local and state requirements thoroughly.

Starting a Short-Term Rental Business in Kentucky

Follow these key steps to launch your Kentucky short-term rental business successfully:

Registration and Licensing

No state registration or license is mandated, but many local jurisdictions require hosts to obtain business permits or licenses to operate legally. Criteria and fees vary based on the area.

Application Process

Local licensing procedures often involve:

• Submitting property details, emergency contacts  
• Paying permit/license fees (often $25-$500)
• Providing floor plans, maps, photos
• Attesting safety standards will be met
• Scheduling housing inspections
• Furnishing proof of adequate insurance

Licenses typically require renewal every 1-2 years.

Getting Started Tips

In addition to licensing, successful hosts should:

• Vet potential property management partners
• Implement strong cleaning plans between guests
• Use professional photography and descriptions
• Master prompt communication and inquiries  
• Provide local recommendations to enhance guest experiences
• Maintain meticulous documentation for taxes

Housing Rules and Requirements

Kentucky short-term rental properties must comply with various safety regulations and occupancy limits.

Safety Regulations

Typical requirements include:

• Smoke detectors and fire extinguishers 
• Carbon monoxide detectors, if gas appliances exist
• Compliance with all building, electrical, and plumbing codes
• Adequate emergency egress and exits
• Visible exterior house numbers

Occupancy Limits

Local ordinances restrict maximum occupancy for short-term rentals based on factors like number of bedrooms/bathrooms, room sizes, parking availability, and more. Adhere strictly to established occupancy maximums.

Inspections

Some jurisdictions require initial housing inspections plus recurring re-inspections for licensing purposes.

Insurance Requirements

Standard homeowners or renters insurance policies typically exclude short-term rental use in Kentucky. To properly cover your rental business, work with an insurance agent or broker to obtain specialty vacation rental insurance tailored to your situation and local requirements. This should include ample liability coverage, loss of income, theft, and damage protection. Review your policy needs and exclusions carefully with an insurance professional.

Taxes on Short Term Rentals

As a Kentucky host, you must pay all applicable state and local lodging taxes.

State Taxes

Kentucky imposes a 6% sales tax on short-term room rentals. This applies to rental income for stays under 30 days.

Local Lodging Taxes

In addition to 6% state sales tax, many popular Kentucky travel destinations levy their own local transient room or occupancy taxes that apply to short-term rental incomes:

• Louisville charges an 8% transient room tax
• Lexington imposes a 6% transient room tax
• Bowling Green has a 5% hotel tax
• Paducah applies a 5% hotel/motel tax
• Frankfort implements a 7% transient room tax
• Owensboro institutes a 5% hotel occupancy tax
• Covington levies a 6% hotel occupancy tax

To verify the specific local lodging tax rates applied based on where your rental property is located in Kentucky. These hyper-local taxes can vary significantly, so diligent research is crucial for proper collection, reporting, and remittance.

Reporting and Remittance

Register for a sales tax ID number with the Kentucky Department of Revenue to report and remit taxes. Sales tax collections must be filed and paid monthly by the 20th of the following month. Returns can be submitted online through the Department's Kentucky Taxpayer Access Point (TAP) system. Maintain detailed records and comply with all deadlines.

Penalties for Non-Compliance

The Kentucky DOR imposes financial penalties for unfiled, late, or inaccurate tax payments:

• Failure to file returns results in a 2% penalty per month up to 20%
• Underpayment penalties range from 2-10% based on the degree of underpayment
• Late payments face a 5% penalty on tax due plus interest
• Criminal fines and prosecution are possible for tax evasion

Carefully meeting deadlines and keeping meticulous documentation prevents costly penalties. Consider enlisting a tax professional to ensure full compliance.

Bottom Line

By thoroughly researching local ordinances, obtaining required licensing, providing excellent customer service, and carefully meeting tax obligations, short-term renting your property in the Bluegrass State can be rewarding.