Kentucky short-term rental rules for owners

Kentucky leaves short-term rentals to its cities and counties. There is no state license, no state cap and no law limiting what local governments may do, and proposals to change that have so far not become law. Where Kentucky has acted is taxation: since 2023 it has a statewide transient room tax and a clear rule that platforms facilitating bookings must collect tax on the full charge. For owners, that combination means local permits vary enormously, while the tax side has become more uniform.

Local rules: from conditional permits to nothing at all

The two largest cities regulate in detail, and in similar ways:

• Louisville Metro requires every short-term rental to be registered each year, and a non-owner-occupied rental in a residential zone also needs a conditional use permit, granted after a public hearing.
• Lexington-Fayette distinguishes hosted rentals, where a primary resident stays on the property, from unhosted ones. Unhosted rentals in most residential zones need a conditional use permit, and amendments adopted in December 2024 added spacing and density limits.

Beyond these, smaller cities range from permit systems to silence, and many rural counties, including some of the most popular outdoor destinations, have limited zoning or none. In those places, the rules that apply are the health, building and nuisance codes, plus private covenants.

Where rentals find guests

Kentucky's rental demand follows a handful of themes. Bourbon brings visitors to Louisville, Bardstown, Frankfort and the distilleries between them. Horses bring them to Lexington for Keeneland's spring and autumn meets and to Louisville for the Derby. The outdoors draws climbers and hikers to the Red River Gorge, cave explorers to Mammoth Cave, and boaters to Lake Cumberland and Kentucky Lake. Northern Kentucky works as part of the Cincinnati market, and college towns and hospitals add steadier weekday stays. The rules differ as much as the guests: urban markets have detailed ordinances, while many lake and gorge counties have almost none.

Three layers of tax

• Sales tax of 6% on accommodations furnished to transients.
• Statewide transient room tax of 1%, created by House Bill 8 and in force since January 1, 2023, reported separately each month; stays of 30 days or longer are excluded.
• Local transient room taxes set by counties, cities and urban-county governments, which fund tourism commissions and convention centers.

Since January 1, 2023, platforms such as Airbnb and Vrbo must collect the state tax and the local transient room taxes on the total charge, service fees included. Owners who take direct bookings register and file with the Department of Revenue, which moved filings to its MyTaxes portal in March 2025, and with the local tax authority.

Occupational license taxes

Many Kentucky cities and counties levy an occupational license tax on net profits from business activity, rental operations included, and some charge a business license fee as well. Louisville and Lexington both do. Budget for it alongside income tax, and file even in years with a small profit if your locality requires a return.

Insurance, associations and events

Derby week in Louisville, the Keeneland meets in Lexington, bourbon tourism and University of Kentucky games create short, intense peaks, and they are also the nights when parties and damage are most likely. Use a short-term rental policy with liability cover, set event and occupancy rules in writing, and screen bookings carefully. Many subdivisions and condominiums restrict rentals through their covenants, and in Lexington or Louisville an association objection can also surface at a conditional use permit hearing.

Owner checklist

• Identify the local government and whether it regulates short-term rentals.
• Check zoning and whether a conditional use permit and public hearing are required for your type of rental.
• Register the rental locally where required, and renew each year.
• Register for sales tax and the state transient room tax for direct bookings, and for the local room tax.
• Obtain any occupational license and business license.
• Review covenants and insurance before you buy.

If you own a Kentucky property or are weighing one, we study every request and tell you honestly whether and how we can help.