VRBO Host Taxes in Kentucky - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Basics for VRBO Hosts in Kentucky

From the rolling hills of the Bluegrass region to the bustling city of Louisville, Kentucky’s hospitality scene is thriving thanks to platforms like VRBO. However, alongside the benefits of sharing your property, comes the responsibility of accurately reporting rental income. Income earned through VRBO, Airbnb, or similar platforms is generally taxable at both the federal and Kentucky state levels. This guide provides an overview of the key tax considerations for VRBO 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 rental 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). Rental income is reported as part of your overall adjusted gross income on Form 740, the Kentucky Individual Income Tax Return. If your rental activity is considered a business (see section 2 below), you will likely need to file Schedule SE (Self-Employment Tax) along with your Form 740. Kentucky also requires the filing of Schedule R (Rental Income and Expenses) to detail your rental property income and associated expenses. It’s crucial to maintain meticulous records of all income and expenses related to your VRBO rental. Kentucky’s Department of Revenue offers resources and guidance for self-employed individuals, including information on estimated tax payments, which may be required if you anticipate owing more than $1,000 in state income tax. Failure to file and pay taxes on time can result in penalties and interest. Kentucky also allows for certain credits and deductions that may reduce your overall tax liability; exploring these options is recommended. For detailed information and forms, please visit the Kentucky Department of Revenue website: https://revenue.ky.gov/

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

This is the most important tax question for a VRBO host, as it determines if you owe self-employment tax. The IRS classifies rental activities based on the level of services provided.

• Schedule E (Passive Rental Income): Most casual hosts report on Schedule E (Supplemental Income and Loss). This applies if you only provide basic lodging and cleaning between guests. If you fall into this category, your rental income is considered passive, and you are generally exempt from the 15.3% self-employment tax (Social Security and Medicare).
• Schedule C (Active Business Income): However, if you provide "substantial services" – think daily cleaning, providing meals, or offering concierge-style services – you report on Schedule C (Profit or Loss from Business). This classifies your rental activity as an active business, and you must pay the 15.3% self-employment tax on your net rental income.

Top Tax Write-offs for Kentucky Hosts

• Platform Fees: Fees charged by Airbnb, VRBO, and other platforms are fully deductible as business expenses.
• Mortgage Interest & Property Taxes: You can deduct the portion of your mortgage interest and property taxes that corresponds 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), routine upkeep (maintenance), and professional cleaning services or cleaning supplies. Improvements, which add value to the property, are generally depreciated rather than deducted immediately.
• Depreciation: A powerful but complex deduction that allows you to deduct a portion of the cost of your rental property over its useful life. This accounts for the wear and tear on the property. Calculating depreciation can be complicated, and consulting a tax professional is often recommended.