Airbnb Host Taxes in Kentucky - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for Airbnb Hosts in Kentucky

From the rolling hills of the Bluegrass region to the bustling city of Louisville, short-term rentals are becoming increasingly popular in Kentucky, offering homeowners a unique income opportunity. However, alongside the benefits comes the responsibility of understanding and fulfilling tax obligations. Income earned through platforms like Airbnb is generally taxable at both the federal and Kentucky state levels. This guide provides an overview of the key tax considerations for Airbnb hosts in Kentucky for the 2025 tax year.

Kentucky State Tax Rules for Rental Income

As a resident of Kentucky, a state income tax return is required regardless of the amount of Airbnb income earned. Kentucky operates under a flat income tax rate, currently at 4.0% for the 2025 tax year (subject to change by the Kentucky General Assembly). This means all taxable income is taxed at the same rate. Airbnb income is considered self-employment income for Kentucky tax purposes, even if reported on a federal Schedule E. Kentucky requires individuals engaged in business or trade to file an annual income tax return and pay estimated taxes quarterly if their expected tax liability exceeds $500. The primary form for reporting self-employment income is Kentucky Form 740-NP, Net Profit from Business or Profession. This form is used to calculate your net profit, which is then transferred to Form 740, the Kentucky Individual Income Tax Return. It’s crucial to maintain accurate records of all income and expenses related to your Airbnb activity. Kentucky also allows for certain business expense deductions similar to those allowed at the federal level, reducing your taxable income. Failure to properly report Airbnb income can result in penalties and interest. For detailed information and updates on Kentucky tax laws, please visit the Kentucky Department of Revenue website: https://revenue.ky.gov/. Remember to consult with a qualified tax professional for personalized advice tailored to your specific situation.

The Critical Tax Question: Are You a Business or a Rental?

This is the most important tax question for an Airbnb host, as it determines if you owe self-employment tax. The IRS classifies short-term rental activity based on the level of services provided to guests.

• Schedule E (Passive Rental Income): Most casual hosts report on Schedule E (Supplemental Income and Loss) and are exempt from Self-Employment Tax. This applies if you only provide basic lodging and cleaning between guests. Essentially, if you're simply renting out space, you'll likely fall into this category.
• Schedule C (Active Business Income): However, if you provide "substantial services" (daily cleaning, meals, providing toiletries beyond basic soap, concierge services), you report on Schedule C (Profit or Loss from Business) and must pay the 15.3% self-employment tax (Social Security and Medicare). This is because the IRS considers this an active business, not just a passive rental.

Top Tax Write-offs for Kentucky Hosts

• Platform Fees: Fees from Airbnb, VRBO, etc., are fully deductible. These are considered expenses directly related to generating rental income.
• Mortgage Interest & Property Taxes: Deduct the portion of mortgage interest and property taxes corresponding to the rental space and the period it was rented. If the property is used for both personal and rental purposes, you must allocate these expenses accordingly.
• Repairs, Maintenance & Cleaning: Deduct costs for fixing items (repairs), professional cleaning services, and cleaning supplies. Routine maintenance is deductible, while improvements that add value to the property are depreciated.
• Depreciation: A powerful but complex deduction for wear and tear on your property. This allows you to deduct a portion of the property's cost over its useful life. Often requires a tax professional to calculate correctly.