Kentucky limits tax deductions and school taxes while funding historic repairs

Kentucky does not allow certain federal deductions on state income tax returns. The personal deduction rules cover taxpayers other than corporations, including workers earning tips or overtime. The main-home deduction covers interest on debt used to buy the home. Individuals and corporations use specified earlier federal rules for domestic research expenses. Corporations also use the December 31, 2024, federal rules for business interest limits. The domestic research rules also apply to tax years beginning on or after January 1, 2026.

Kentucky applies its 6% sales and use taxes to covered services that collect, combine, and analyze personal data for sale. The data-service tax covers sales for Kentucky use. Services bought and electronically transferred for use solely outside Kentucky are excluded. Covered fixed-price contracts and leases signed on or before February 25, 2026, are excluded. Sales by Kentucky state and local government bodies are also excluded. Covered online marketplaces and sellers without a Kentucky location must register and collect tax when Kentucky sales exceed $100,000 in the current or previous calendar year. These provisions take effect August 1, 2026.

Fantasy contest providers and prediction market operators will pay taxes on covered business receipts. Prediction market taxes cover transactions by Kentucky residents and nonresidents buying event contracts while in Kentucky. Fantasy contests without entry fees or with bets against the provider are excluded. These tax sections do not legalize either activity. Covered officers, managers, and partners can personally owe the taxes, interest, and penalties. People without authority to collect, account for, or pay the tax are excluded. Both taxes are paid monthly.

School districts must follow limits on school taxes and state support for building costs. The January 2027 freeze covers school taxes on wages and business profits. Separate sections repeal the school tax based on residents' state income tax bills. State building aid for earlier covered levies depends on state finances and legislative funding. It ends at the earlier of 20 years or repayment of the supported bonds. School boards must publish proposed property tax rates, expected revenue, and whether voters can petition to challenge part of the rate. For assessment years beginning on or after January 1, 2029, covered school taxes on personal property cannot exceed either the prior year's rate or the 2028 rate. The school income-tax repeal takes effect when the law becomes law.

Owners may seek approved tax credits for substantial repairs to recognized historic buildings. Buildings must be listed on the National Register of Historic Places or certified as contributing to a listed historic district. The Kentucky Heritage Council must approve eligible expenses. Most awards share a $100 million annual pool, with 15% assigned to owner-occupied homes and 85% to other properties. Qualifying affordable housing must use at least half its floor space for homes and stay affordable for at least five years to households earning no more than 80% of county median family income. Affordable housing costs, including utilities, cannot exceed 30% of the occupant's income. Ordinary project caps are $120,000 for owner-occupied homes and $10 million for other properties. A separate credit covers historic buildings with at least 25 stories and more than $150 million in eligible repairs. It is capped at $40 million and sits outside the ordinary annual pool. Section 59 covers applications received on or after April 30, 2026. The separate tall-building credit covers tax years beginning on or after January 1, 2027, but before January 1, 2031.