Lexington-Fayette, Kentucky Short-Term Rental Regulation: A Guide For Airbnb Hosts

What are Short-Term Rental (Airbnb, VRBO) Regulations in Lexington-Fayette, Kentucky?

Lexington-Fayette, Kentucky has implemented comprehensive regulations for short-term rentals (STRs) like Airbnb and VRBO to balance the needs of the tourism industry with those of local residents. These rules cover licensing, zoning, occupancy limits, and operational standards. Here's an overview of the key regulations for STRs in Lexington-Fayette:

Starting a Short-Term Rental Business in Lexington-Fayette

To operate a short-term rental in Lexington-Fayette, property owners must obtain a Special Fees License from the Lexington-Fayette Urban County Government. The licensing process includes several requirements:

• Annual Fee: Operators must pay a $200 annual licensing fee, plus an additional $100 for each extra rental unit owned.
• Registration Number: All short-term rental advertisements must display a local registration number.
• Zoning Compliance: Properties must comply with local zoning laws. Some areas may require a conditional use permit for STRs.
• Occupancy Limits: Short-term rentals in residential areas are limited to a maximum of 10 guests. This is a recent change from the previous limit of 12 guests.
• Density Restrictions: New unhosted STRs cannot be approved if 2% of housing units within 1,000 feet are currently unhosted STRs. Additionally, new unhosted STRs must be at least 600 feet away from existing STRs.
• Insurance: Operators must show proof of valid general liability insurance.
• Local Contact: Applicants must provide contact information for an emergency contact located within 25 miles of the rental property.
• Safety Measures: Short-term rentals must have smoke detectors in all sleeping areas and adjacent hallways, as well as carbon monoxide detectors in properties with fuel-burning appliances or attached garages.

The Lexington-Fayette Urban County Council has been actively refining these regulations. In December 2024, they approved tighter restrictions to limit the concentration of STRs in residential neighborhoods. These changes aim to address concerns about the impact of short-term rentals on housing availability and community character.

It's worth noting that the regulations distinguish between hosted and unhosted rentals. Hosted rentals, where the owner lives on the property during guest stays, may have more flexibility in some zones.

Prospective STR operators should also be aware of tax obligations. Short-term rental hosts in Lexington are expected to pay taxes on their rental income, including an 8.5% local transient room tax, a 1% state transient room tax, and a 6% sales tax.

In conclusion, while Lexington-Fayette has implemented comprehensive regulations for short-term rentals, the city aims to strike a balance between supporting the tourism economy and preserving neighborhood integrity. By carefully following these rules and obtaining the necessary licenses, hosts can operate successful short-term rentals in this vibrant Kentucky community.

Short-Term Rental Licensing Requirement in Lexington-Fayette, Kentucky

Operating a short-term rental in Lexington-Fayette requires strict adherence to the city's comprehensive licensing framework. The Lexington-Fayette Urban County Government has established clear requirements to ensure all STR operators maintain community standards while contributing to the local tourism economy.

To legally operate a short-term rental in Lexington-Fayette, you must obtain a Special Fees License through the Division of Revenue. Here's a detailed breakdown of the licensing requirements:

1. Special Fees License: This is the primary license required for all STR operators. The annual fee structure is $200 for your first rental unit and $100 for each additional unit you own.
2. Business License: Before applying for the Special Fees License, you must first obtain a standard business license from the Division of Revenue.
3. Zoning Compliance Permit: You'll need approval from the Division of Planning confirming that your property complies with local zoning regulations. Some zones may require a conditional use permit.
4. Completed Online STR Registration Form: This form collects essential information about your property and you as the operator.
5. Property Documentation: You must submit an Excel document detailing the address of each STR, number of dwelling units used as STRs on each property, maximum occupancy requested, and whether each property is hosted or unhosted.
6. Website Information: Provide the website address where guests can review locally-required duties of a licensee and file complaints.
7. Emergency Contact: You must designate an emergency contact who resides or is located within 25 miles of your rental property.
8. Insurance Proof: Submit a certificate or valid proof of general liability insurance of at least $1,000,000 per occurrence.
9. Site Plan and Floor Plan: These must show the rental property layout, including the number of vehicles that can legally park on the property without encroaching on streets, sidewalks, or public rights of way.
10. Safety Compliance Affidavit: You must confirm that your property meets all health and safety requirements, including smoke detectors, carbon monoxide detectors, and emergency evacuation plans.
11. Building Code Compliance Affidavit: Confirm that your property complies with all applicable building codes, fire codes, and other local, state, and federal regulations.
12. Septic Tank Documentation: For properties using septic systems, you'll need documentation from the Health Department confirming the system can handle the proposed STR use.

All application materials must be submitted to the Lexington-Fayette Urban County Government's Division of Revenue. The licensing process typically takes 2-4 weeks to complete, depending on application volume and the complexity of your specific situation.

Operating a short-term rental without the required license in Lexington-Fayette can result in significant penalties. The city's Code Enforcement officers actively monitor compliance and can issue citations for violations. While the exact fine structure isn't specified in the available information, penalties typically escalate for repeat offenses. First violations may result in a warning or minimal fee, while subsequent violations lead to increasingly substantial fines.

Additionally, operating without a license may result in your property being prohibited from offering short-term rentals in the future. The city has also established a hotline for reporting STR violations, making it easier for neighbors to report non-compliant properties, which can trigger investigations by Code Enforcement officers.

To avoid these penalties and ensure smooth operation of your short-term rental business, it's essential to complete the licensing process before listing your property on platforms like Airbnb or VRBO. Remember that your local registration number must be displayed on all advertisements for your rental property.

Required Documents for Lexington-Fayette Short-Term Rentals

Successfully operating a short-term rental in Lexington-Fayette requires meticulous documentation. Each document serves a specific purpose in ensuring your rental meets local standards for safety, zoning, and taxation. Here's a comprehensive list of the required documents:

Completed Online STR Registration Form: This official form collects essential information about your property and you as the operator. It's available through the Lexington-Fayette Urban County Government (LFUCG) website and serves as the foundation of your application.

Excel Property Document: You must submit a detailed spreadsheet indicating the address of each STR property, number of dwelling units used as STRs, maximum occupancy requested, and whether each property is hosted or unhosted. This helps the city track and manage STR density.

Website Information: Provide the website address where guests can review locally-required duties of a licensee and file complaints. This ensures transparency and accountability in your operations.

Zoning Compliance Permit: Obtained through the Division of Planning, this document confirms your property complies with local zoning regulations. It verifies that short-term rentals are permitted in your specific zone.

Site Plan and Floor Plan: These documents must show your rental property layout, including the number of vehicles that can legally park on the property without encroaching on streets, sidewalks, or public rights of way. This helps ensure adequate parking for guests.

Proof of General Liability Insurance: You must provide a certificate or valid proof of general liability insurance of at least $1,000,000 per occurrence. This protects both you and your guests in case of accidents or damages.

Emergency Contact Information: Documentation providing the name, address, phone number, and email address of an emergency contact who resides or is located within 25 miles of your rental property. This ensures someone is available to address urgent issues.

Health and Safety Affidavit: An affidavit confirming that your property meets all health and safety requirements, including:

1. Smoke detectors in all sleeping areas and adjacent hallways
2. Carbon monoxide detectors (for properties with fuel-burning appliances or attached garages)
3. At least one maintained and charged fire extinguisher
4. Emergency evacuation plan posted on the premises
5. Each sleeping room having at least one operable emergency and rescue opening

Building Code Compliance Affidavit: A sworn statement confirming that your property complies with all applicable building codes, fire codes, and other local, state, and federal regulations.

Septic Tank Documentation: For properties using septic systems, you must provide documentation from the Health Department confirming the system can handle the proposed STR use based on the number of occupants.

Residency Proof for Hosted STRs: If operating a hosted STR (where you live on the property), you must provide at least two forms of proof that this is your primary residence where you reside for a minimum of 275 days per year. Acceptable documents include a driver's license, voter registration, tax documents, or utility bills.

Business License: Before applying for the Special Fees License, you must obtain a standard business license from the Division of Revenue, which allows you to conduct business in Lexington-Fayette County.

These documents must be submitted to the Division of Revenue as part of your application for a Special Fees License. The thoroughness of this documentation process reflects Lexington-Fayette's commitment to maintaining neighborhood integrity while supporting the growth of properly regulated short-term rentals.

Lexington-Fayette Short-Term Rental Taxes

Operating a short-term rental in Lexington-Fayette comes with specific tax obligations that every host must understand and comply with. These taxes contribute to local infrastructure and tourism development while ensuring STR operators contribute fairly to the community where they conduct business.

Transient Room Taxes

The primary tax affecting short-term rental operators in Lexington-Fayette is the local transient room tax, which stands at 8.5% of the total rent charged or collected for reservations of 29 nights or shorter. This tax applies to the listing price and includes any cleaning fees and guest fees. Platforms like Airbnb and VRBO typically collect and remit this tax on behalf of hosts as part of their agreement with Lexington-Fayette Urban County Government.

State Transient Room Tax

In addition to the local tax, Kentucky imposes a statewide transient room tax of 1% on all rent collected from short-term rentals. As of 2025, major platforms like Airbnb and VRBO are collecting and remitting this tax for participating Kentucky hosts. However, if you're using a platform that doesn't handle this collection, you'll need to register with the Kentucky Department of Revenue and manage this obligation yourself.

Kentucky Sales Tax

Short-term rental operators must also collect and remit a 6% Kentucky sales tax on all rental income. This tax applies to the entire amount charged to guests. Similar to the state transient room tax, if you exclusively book through platforms that collect and remit this tax on your behalf, you may not need to register separately with the state.

Occupational License Fee

Lexington-Fayette requires short-term rental operators to pay an occupational license fee on net profits earned from their rental operations. This is essentially a local income tax on your STR business earnings. The current rate is 2.25% on earnings, and it typically applies to operators with a limited liability corporation making more than $50,000 in gross revenue.

Annual Licensing Fees

While not technically a tax, it's worth noting that STR operators must pay an annual licensing fee of $200 for their first rental unit and $100 for each additional rental property. These fees help fund the city's STR monitoring and enforcement programs.

Possible Write-offs and Deductions

Short-term rental hosts in Lexington-Fayette can potentially reduce their tax burden through various deductions:

1. Mortgage Interest and Property Taxes: You can deduct a portion of these expenses based on the percentage of your property used for rental purposes and the amount of time it's rented.
2. Repairs and Maintenance: Costs for fixing leaks, replacing doors, painting, and other necessary repairs are fully deductible if they're essential for property upkeep.
3. Utilities: You can deduct the portion of utility bills (electricity, water, gas, internet) used by guests, typically calculated based on the percentage of your home that's rented and rental duration.
4. Cleaning and Supplies: Expenses for cleaning between guests, including professional cleaning services and laundry for guest linens, are fully deductible.
5. Furnishings and Depreciation: You can deduct the cost of furniture, appliances, and other items purchased for your rental, either all at once or through depreciation over time.
6. Insurance Premiums: The portion of your homeowner's or landlord insurance that covers your rental activity is deductible.
7. Professional Services: Fees paid to accountants, attorneys, property managers, and other professionals related to your rental business are deductible.
8. Travel Expenses: If you travel to your property for maintenance, repairs, or guest services, these transportation costs can be deducted with proper documentation.
9. Marketing and Advertising: Costs associated with promoting your rental, including photography, listing fees, and website development.
10. Home Office: If you maintain a dedicated space for managing your rental business, you may qualify for the home office deduction.

Maintaining detailed records of all expenses is crucial for maximizing these deductions while ensuring compliance with tax regulations. Consider consulting with a tax professional familiar with short-term rental operations in Kentucky to optimize your tax strategy and ensure you're meeting all obligations.

Kentucky Wide Short-Term Rental Rules

Kentucky has recently taken steps to standardize short-term rental regulations across the state, which directly impacts hosts in Lexington-Fayette. These new state-wide rules aim to create a more uniform approach to short-term rental management while potentially overriding some local regulations.

In March 2025, the Kentucky House of Representatives passed Senate Bill 61 (SB 61), which, if enacted into law, would significantly alter the landscape for short-term rental operators throughout the state, including those in Lexington-Fayette. The key provisions of this bill include:

1. Prohibition of Density Regulations: Local governments would be barred from implementing or enforcing density restrictions on short-term rentals. This would effectively nullify Lexington's current rules that prevent new unhosted short-term rentals from being approved within 600 feet of existing ones or in areas where short-term rentals exceed 2% of housing units within a 1,000-foot radius.
2. Expedited Approval Process: The bill mandates that local governments must approve short-term rental applications, licenses, and conditional use permits within 30 days of the filing date. This could streamline the process for new hosts looking to enter the market.
3. Limited Grounds for Denial: Local authorities would only be allowed to deny short-term rental applications based on issues related to public safety, health, or welfare. This narrows the scope of reasons a city like Lexington-Fayette could use to reject a short-term rental application.
4. Exemption for Infrequent Rentals: The proposed legislation would prohibit local governments from regulating short-term rentals that are rented for fewer than 30 days annually. This could create a new category of occasional hosts who would face minimal oversight.
5. State-wide Transient Room Tax: Kentucky imposes a 1% state transient room tax on all short-term rentals. This tax is in addition to any local taxes and applies to the entire amount charged to guests.
6. Kentucky Sales Tax: Short-term rental operators must collect and remit a 6% Kentucky sales tax on all rental income. This is a state-wide requirement that applies uniformly across all municipalities.
7. Insurance Requirements: While specific insurance requirements are not detailed in the recent legislation, short-term rental operators across Kentucky are generally expected to maintain adequate liability insurance coverage.
8. Safety Standards Compliance: All short-term rentals in Kentucky must comply with state-wide building codes, fire safety laws, and health regulations. This ensures a baseline of safety standards across all rental properties in the state.

It's important to note that as of April 2025, SB 61 has passed the House but still requires Senate approval and the Governor's signature to become law. If enacted, this legislation would significantly impact Lexington-Fayette's ability to regulate short-term rentals at the local level, potentially overriding many of the city's current ordinances.

For Lexington-Fayette hosts, these state-wide rules could mean more flexibility in operating short-term rentals, particularly in areas where local density restrictions have previously limited growth. However, it also means that hosts must stay informed about both state and local regulations, as the landscape of short-term rental operation in Kentucky continues to evolve.

Does Lexington-Fayette Strictly Enforce STR Rules?

Lexington-Fayette maintains a moderate but consistent approach to enforcing short-term rental regulations. While not draconian in its enforcement, the city has established clear mechanisms to ensure compliance with its STR ordinances.

As of March 2025, the city has issued 14 citations specifically for operating without a license and sent first notices to an additional 78 properties to bring them into compliance with local ordinances. These enforcement actions have generated $4,750 in collected citation fees, with another $7,000 in outstanding fines awaiting payment. These numbers reflect an active but measured enforcement approach.

Lexington-Fayette is relatively Airbnb-friendly compared to notoriously restrictive markets like New York or San Francisco. The city has established clear guidelines and a straightforward licensing process that allows hosts to operate legally as long as they comply with the rules. The regulatory framework strikes a balance between maintaining community standards and allowing hosts to operate profitable STR businesses.

The penalties for non-compliance in Lexington-Fayette are significant enough to encourage compliance. Fines for violations start at $125 for a first offense and can escalate to $1,000 for repeated offenses. More seriously, failure to obtain a Special Fees License can result in daily penalties of $500 and/or imprisonment for up to 12 months.

In conclusion, Lexington-Fayette takes a balanced approach to STR enforcement—neither overly permissive nor excessively restrictive. The city actively monitors compliance but doesn't appear to be aggressively hunting down every potential violation. For hosts willing to follow the established rules and obtain proper licensing, Lexington-Fayette offers a stable and predictable environment for operating short-term rentals.

How to Start a Short-Term Rental Business in Lexington-Fayette

Starting a short-term rental business in Lexington-Fayette requires careful planning and adherence to local regulations. Follow these steps to establish your STR business legally and efficiently:

Research Zoning Regulations

Before investing in a property, verify that short-term rentals are permitted in your desired area. Lexington-Fayette has specific zoning restrictions that may limit STR operations in certain neighborhoods. Contact the Division of Planning and Zoning at (859) 258-3160 to confirm whether your property is eligible for short-term rental use. Remember that density restrictions apply—new unhosted STRs cannot be approved if 2% of housing units within 1,000 feet are already unhosted STRs, and they must be at least 600 feet from existing STRs.

Obtain a Zoning Compliance Permit

Apply for a Zoning Compliance Permit through the Division of Planning. This permit verifies that your property meets all zoning requirements for short-term rental use. You can submit your application online through the Lexington-Fayette Urban County Government website or in person. Be prepared to provide detailed information about your property, including floor plans and site layouts showing available parking spaces.

Secure a Business License

All short-term rental operators in Lexington-Fayette must obtain a standard business license from the Division of Revenue. This license allows you to conduct business within the county. You can apply online at the LFUCG website, in person at the Division of Revenue office (200 East Main), or by mail. The application fee is $100, payable by check or money order to LFUCG.

Apply for a Special Fees License

After securing your business license, apply for a Special Fees License through the Division of Revenue. This license is specific to short-term rental operations and costs $200 for your first rental unit, with an additional $100 for each subsequent unit. This license must be renewed annually.

1. Prepare Required Documentation
2. Gather all necessary documents for your Special Fees License application:
3. Completed online STR registration form
4. Excel document detailing your rental properties (addresses, number of units, maximum occupancy, hosted/unhosted status)
5. Site plan and floor plan of each rental property
6. Proof of general liability insurance (minimum $1 million coverage)
7. Contact information for an emergency contact within 25 miles of your property
8. For properties with septic tanks, documentation from the Health Department
9. For hosted rentals, two forms of proof that the property is your primary residence

Ensure Safety Compliance

Make sure your property meets all safety requirements:

1. Install smoke detectors in all sleeping areas and adjacent hallways
2. Add carbon monoxide detectors if you have fuel-burning appliances or an attached garage
3. Maintain at least one charged fire extinguisher
4. Create and post an emergency evacuation plan
5. Ensure all sleeping rooms have at least one operable emergency and rescue opening

Register for Tax Collection

Register to collect and remit the required taxes:

1. 8.5% local transient room tax
2. 1% state transient room tax
3. 6% Kentucky sales tax
4. 2.25% occupational license fee on net profits (for businesses making over $50,000)

While platforms like Airbnb and VRBO may collect some of these taxes on your behalf, verify which ones you're personally responsible for remitting.

Create Your Listing

Develop compelling listings for platforms like Airbnb and VRBO. Remember to include your local registration number in all advertisements, specify the maximum occupancy, and include a statement prohibiting guests from exceeding this limit. Take high-quality photos and write detailed descriptions highlighting your property's unique features and proximity to local attractions.

Set Up Guest Communications

Create a welcome book and house rules that include:

1. Emergency contact information
2. Trash and recycling instructions
3. Local attractions and recommendations
4. House rules and check-out procedures
5. Link to review STR ordinances

Place this information in a conspicuous location within your rental property.

Maintain Ongoing Compliance

Stay current with license renewals, tax payments, and any changes to local regulations. Keep detailed records of all rental income and expenses for tax purposes. Regularly inspect and maintain your property to ensure it continues to meet all safety requirements and guest expectations.

By following these steps diligently, you'll establish a legally compliant and professionally managed short-term rental business in Lexington-Fayette. Remember that the licensing process typically takes 2-4 weeks to complete, so start well before your planned launch date to ensure a smooth beginning to your STR venture.

Who to Contact in Lexington-Fayette about Short-Term Rental Regulations and Zoning?

Navigating the regulatory landscape for short-term rentals in Lexington-Fayette requires connecting with the right government departments and community resources. Here's a comprehensive list of contacts and resources to help you stay informed and compliant:

Official Government Contacts

Division of Planning

• Phone: (859) 258-3160
• Email: planningmailbox@lexingtonky.gov
• Address: 101 E. Vine Street, Suite 700, Lexington, KY 40507

The Division of Planning handles zoning compliance permits and can answer questions about whether your property is eligible for short-term rental use. They're your first stop for understanding zoning restrictions and density limitations.

Division of Revenue

• Phone: (859) 258-3340
• Address: 200 East Main Street, Lexington, KY 40507

This department processes business licenses and Special Fees Licenses required for short-term rental operations. Contact them for questions about licensing fees, renewal processes, and tax obligations.

Code Enforcement

Phone: (859) 258-3030

If you have questions about compliance with safety requirements or want to understand how inspections work, the Code Enforcement team can provide guidance. They also handle complaints and violations related to short-term rentals.

Lexington-Fayette Urban County Council

Phone: (859) 258-3200

For questions about current or upcoming legislation affecting short-term rentals, you can contact the council office. Councilmembers James Brown and Liz Sheehan have been particularly active in shaping STR regulations.

Community Resources and Forums

Kentucky Airbnb Host Network Facebook Group: A community that connects local hosts who share experiences, advice, and updates on regulatory changes.

BiggerPockets: BiggerPockets has dedicated discussion threads for Airbnb hosts where you can learn from experienced operators and ask questions about local regulations.

r/lexington Subreddit: While not exclusively focused on short-term rentals, this Reddit community frequently discusses local regulations and can be a valuable resource for connecting with other hosts and staying informed about neighborhood concerns.

When contacting any of these resources, be prepared with specific questions about your property and situation. Many hosts recommend scheduling in-person appointments with the Division of Planning before purchasing a property intended for short-term rental use, as this can help you avoid investing in a location with zoning restrictions that would prevent STR operations.

Remember that regulations can change, so maintaining regular contact with these resources will help ensure your short-term rental business remains compliant with all local ordinances and requirements.

Disclaimer: While we here at BNBCalc strive to keep all of our city regulation guides updated and accurate with all the latest local laws, we still do not suggest using them as your sole or primary source for local regulations. We also do not recommend you rely on the third-party sources we link to or reference, and we are not responsible for any of the information on these third-party sites. These guides are for entertainment purposes only and only provide basic information and should not be considered as legal advice.

We highly recommend directly contacting the responsible parties for each city and hearing what their officials have to say. Ultimately, it's your responsibility as an investor to ensure you fully comply with the local laws, and it's best to speak with professionals before making an investment decision.