Whether you have recently finished paying off your mortgage, have just invested in a new property in Kentucky, or are considering doing so, you need to know about the property tax laws and how they impact you.
Luckily for owners in the state, Kentucky has one of the lowest median property tax rates of any state.
Almost every property owner in Kentucky is required to pay tax on their property, and how much their bills are will depend on the value of their home and the county they live in.
Here is a comprehensive guide to paying property tax in Kentucky, how it works, when you pay it, and what happens if you don't so that you can comply with the state's rules and maximize the profits of your investment property.
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Understanding How Kentucky Property Tax Works
Kentucky property taxes are due every year and are issued and collected by the County Clerk in each local area. Tax rates are also set by individual local governments, fiscal courts, and school boards based on their budgets and how much revenue they need to generate.
This means that someone in Jefferson County may pay a very different amount to someone in Kenton County.
Your tax rates may also vary depending on the local taxing districts in your county. School districts, county extension districts, and soil conservation districts are just some of the relevant parties that can influence how real estate is taxed.
Like most states, the value of your property (as determined by your county's dedicated Property Valuation Administrator) also influences your total tax bill.
House Bill 44
There is no state-wide property tax rate in Kentucky, but there are rules and restrictions that apply to every country and taxing district under House Bill 44.
House Bill 44 has been in effect since 1979 and was proposed to limit the allowed increase in personal property tax rates and revenue from year to year without public hearings or a recall petition.
Local taxing districts are given three options under House Bill 44. We'll go over these below.
Compensating Tax Rate
A compensating tax rate is essentially one that generates the same total revenue from existing properties that it did in the previous year. Any new builds or newly purchased homes are not included.
In the simplest possible terms, it means that local tax districts must adjust their rates to generate the same amount of total revenue from the same real properties, even if the assessed value of those properties combined has gone up.
If the market has changed and properties that were worth a total of $50 million last year are now worth $52 million, the tax rate must drop to compensate for the change.
Say they generated $400,000 based on a rate of 0.8%. To generate the same amount, they need to charge a lower tax rate to compensate (roughly a 0.03% difference, in this case).
Any new properties that were not included in the previous year will also be charged at the new tax rate, and the additional income will then be included in the next annual calculations.
Up to a 4% Tax Rate Increase
The second option is to increase the compensating tax rate by up to 4% (rounded down to the nearest 10th). Increases are capped here unless they want to open it up to a recall vote.
With this option, districts must hold a public hearing. Any district that includes a first-class city must hold at least three hearings.
They must be held in several locations in a facility near the geographical center of town to make it convenient for as many people as possible to attend. Hearings must be publicized at least two times over two weeks in the largest-circulating newspaper in the area with at least a 12-inch column with all the relevant details.
Alternatively, a notice can be sent by mail to every property owner impacted by the change.
Over 4% Additional Generated Revenue
If a district decides it needs to generate over 4% more revenue from property taxes than the previous year, it needs to hold a recall vote.
Five qualified voters take part and have 45 days to issue a petition if they do not agree with the increase. If the county clerk finds it sufficient, a process begins to decide whether or not it goes ahead. It is quite a complex proceeding that can take some time to find a resolution.
When Are Property Tax Bills Paid in Kentucky?
The standard payment period for Kentucky property taxes is November 2nd until December 31st. If you pay them within this time frame, you will not be penalized.
In some cases, if you receive your bill early, you can pay your property taxes in October. Paying in full before November 1st earns you a 2% discount on your rate.
What Happens If Your Payment Is Late?
If you pay after December 31st but before February 1st, the penalty is 5% of the total amount due on top of your tax bill. After February 1st, the penalty rises to 21% extra.
Your tax becomes delinquent from April 15th, when the tax year ends. If they are still unpaid, your tax bills get deferred to the County Clerk, whose office may put your property up for sale to a third-party purchaser to cover the debt and any other costs incurred.
This could lead to you losing ownership of your property.
The Annual Kentucky Property Tax Collection Cycle
- Tax bills are delivered to the County Sheriff's office by September 15th.
- Taxes are payable until November 1st with a 2% discount.
- Taxes a due and payable at face value until December 31st.
- Unpaid balances become delinquent taxes and can be paid with a 5% penalty until January 31st.
- Penalties increase to 10% after January 1st, with a possible additional 10% fee from the Sheriff's office.
- Any bills that remain unpaid at the close of business on April 15th are transferred to the County Clerk.
- Certificates of Delinquency sales take place between July 14th and August 28th.
How Do You Pay Your Property Taxes in Kentucky?
In many counties, the Sheriff's office is responsible for the collection of property taxes, and they can usually be paid by cash, card, or check. This varies from county to county, so it is best to check with your local authorities.
You may also be able to pay your property tax bill online using your bank card through the County Clerk or Sheriff's Office website.
How Much Are Kentucky Property Taxes?
Kentucky is a good state to live in for property taxes, having one of the lowest rates in the country. The median property tax rate for the state is 0.8% or roughly $8.05 for every $1,000 of your property's fair market value. Comparatively, the US average is 0.99%.
The exact rates vary between counties and taxing districts, and the median home value in each county influences the average tax bill.
Jefferson County is the most populous county in Kentucky and has one of the highest property tax rates in the state at 1.05% or $9.30 per $1000. The average real estate tax bill, according to the Jefferson County Clerk's Office, is $1876.
Kenton County and Campbell County have the highest tax rates in the state, both well over the national average at 1.30% and 1.36%. At the other end of the scale, you have Carter County. Tax bills cost an average of just $532 annually, with a rate of just 0.49%.
How Are Property Tax Rates Calculated in Kentucky?
Two things go toward calculating your Kentucky property tax bill:
- The assessed value of your property
- The local tax rates set by your county or district
A Property Valuation Administrator is appointed in each county, and they are responsible for determining the fair market value of every property in their area. This must be done at least every four years. Properties are taxed at 100% of their value, so the valuation must be fair.
If you disagree with your property's assessed value, you can appeal it through your County Clerk's office.
Individual tax rates are based on the budgetary requirements of the county. They adjust the rates based on how much revenue they need to generate, but are limited on how much they can change rates annually under House Bill 44.
So to calculate your property tax bill, multiply your total assessed value by the local property tax rate.
If you qualify for any exemptions, you subtract the exemption amount from the total assessed value and multiply the difference by the local tax rate.
Can You Reduce Your Property Taxes in Kentucky?
There are a few exemptions available for some Kentucky property owners. If you apply for one of the following, you could be eligible for lower property tax payments:
- Homestead exemption (up to $40,500 off the assessed value, available to disabled owners and over 65s who live in the property as their primary residence)
- Senior citizens exemption (up to $6500 off the assessed value, available to property owners over 65 years of age)
- Disabled veterans exemption (up to $40,500 off the assessed value, available to some war veterans)
Paying real estate taxes may not be everyone's favorite thing to do, but it is vital that they do.
It helps to understand how Kentucky's property taxes work and what you are likely to owe, and thanks to House Bill 44, you can generally rest assured that the amount won't change significantly from year to year.
You can find plenty of property tax information from your County Clerk and local tax district websites to keep you informed.
If you're looking for more tips on property management accounting, check out our whitepaper on the best tips for simplifying this complex process.