Kentucky taxes capital gains at 4%. Combined with federal taxes, your effective rate on a home sale could reach 22.8%.
KY State Rate
4%
Flat tax rate
Federal Rate
15%
Most common long-term bracket
Combined Effective
22.8%
On $150K taxable gain (example)
After the $250K/$500K exclusion, here's what a typical seller might owe.
If Kentucky is where your primary residence is located and you've lived there at least 2 of the last 5 years, you can exclude up to $250K (single) or $500K (married filing jointly) of your capital gain from both federal and state taxes.
Investment and rental properties in Kentucky don't qualify for the exclusion. You'll owe 4% state tax plus federal tax on the full gain, plus 25% depreciation recapture on any depreciation claimed.
In Kentucky, homes sold in February sell for 6% more than those sold in October (-7%). Timing your sale right can offset a significant portion of your tax bill.
Capital gains tax rates on home sales in Kentucky and nearby states.
| State | Rate | Tax on $150K Gain | Notes |
|---|---|---|---|
| 0% | $0 | No state income tax | |
| 3.05% | $4,575 | Flat tax rate | |
| 3.5% | $5,250 | Flat tax rate (2026) | |
KentuckyYou | 4% | $6,000 | Flat tax rate |
| 4.8% | $7,200 | Top marginal rate | |
| 4.95% | $7,425 | Flat tax rate | |
| 5.12% | $7,680 | Top marginal rate | |
| 5.75% | $8,625 | Top marginal rate |
Selling in Tennessee instead of Kentucky would save $6,000 in state tax on a $150K gain.
Kentucky taxes capital gains at a flat 4.0% rate, making it one of the more affordable states for sellers in the region. The flat rate simplifies planning.
Louisville and Lexington drive most market activity. The state's affordable pricing means most primary residence gains fall within the federal exclusion.
Kentucky does not offer special treatment for capital gains versus ordinary income. The 4.0% rate applies uniformly.
Investment property sellers benefit from Kentucky's low rate compared to neighbors like Virginia (5.75%) and Ohio (3.5%).
Offering buyer concessions?
Our sister tool helps you model different scenarios and maximize your position.