Is Rental Arbitrage Legal in Kentucky?
In Kentucky, local governments set all short-term rental rules including zoning, registration, licensing, and safety standards. The state collects 6% sales tax and 1% transient room tax on lodging; platforms collect these automatically. No statewide permit or license exists. Cities vary widely: Louisville requires $250 annual registration for primary residences; Lexington charges $200 for the first unit and $100 each additional; Bowling Green prohibits STRs in single-family residential zones. Four preemption bills (2025-2026) failed, preserving local control.
Requirements
- Check the rules of your city or county
- State sales tax registration with Kentucky Department of Revenue (unless a platform collects it for you)
- Local registration, permit or license, depending on city (requirements vary widely)
- Louisville: $250 annual registration per property
- Lexington: $200 first unit, $100 each additional, plus zoning verification and business license
- Bowling Green: $45 STR permit application fee plus conditional use permit (varies by zoning)
- Bone County: Valid STR permit from Occupational License Office
- $1 million general liability insurance (required statewide)
Restrictions
- Local control; no statewide regulations
- Stays of 30+ consecutive days are excluded from transient room taxes
- Louisville: Primary-residence requirement, 600-foot separation from other STRs, 12-adult occupancy limit, excluded cities (Anchorage, Douglass Hills, Graymoor-Devondale, Hurstbourne, Indian Hills, Jeffersonton, Lyndon, Prospect, Shively, St. Matthews, St. Regis Park)
- Lexington: Max occupancy 2 per bedroom + 4 additional (max 10 total), 600-foot spacing from other un-hosted units, 2% cap of homes within 1,000 feet, no outdoor signage
- Bowling Green: Prohibited in single-family residential, each room limited to 2 people, allowed with conditional use permit in AG/RR/R-E/RM/NB/OP-R zones
- Boone County: Emergency contact within 1 hour, off-street paved parking required
- HB 18 (March 6, 2024): Prohibits local governments from requiring acceptance of housing vouchers or federal assistance
- SB 61 (2025, pending): Would prevent cities from regulating STR density
Taxes and Fees
- Kentucky sales tax on lodging: 6%
- Kentucky state transient room tax: 1%
- Local transient room taxes (vary by city): Louisville 3%, Lexington 8.5%, Bowling Green 4%, Boone/Campbell/Kenton 5%, Paducah 5%, Owensboro 4%, Oldham County 3%, Woodford County 3%
- Total combined state and local: ranges from 10% to 15.5% depending on city
- Platforms (Airbnb, Vrbo) collect and remit state and local taxes as of January 1, 2023
Cities in Kentucky
Next Step
Legal is one half of the decision. The other half is whether the deal earns enough to be worth the risk.
Sources
Frequently Asked Questions
- What Taxes Apply to Short-Term Rentals in Kentucky?
- A 6% state sales tax on lodging, plus local transient room tax. Louisville's is 3%.
- Do Platforms Collect the Tax?
- Since January 1, 2023, online travel companies and short-term rental platforms must collect state and local transient room tax on the full rental amount, including their fees, where they are registered to do so.