Kentucky Capital Gains Tax Calculator 2026

How Kentucky taxes a capital gain

Statutory authority: Ky. Rev. Stat. 141.020(2)(f) (retrieved 1 September 2026)

The statute names the year, which is unusually helpful

Kentucky writes its rate schedule as a list of dated paragraphs, each naming the taxable years it governs. Paragraph (f) of KRS 141.020(2) states that for taxable years beginning on or after 1 January 2026, the tax shall be three and one-half per cent of net income.

That construction removes the commonest source of error in state rate research. Where a statute states a bare percentage, a reader has no way of telling from the text whether it is current; where the years are written into the paragraph, the text answers the question itself. Kentucky’s 4% figure sits immediately above it in paragraph (e), scoped to years beginning on or after 1 January 2024 and before 1 January 2026 — visibly the previous rate rather than a competing claim.

A 4% figure for 2026 circulates. It comes from a bill that did not pass

House Bill 152 of the 2026 regular session proposed setting the rate at 4% for tax year 2026. It was introduced. It was not enacted, and an introduced bill has no effect on anyone’s liability whatsoever.

The confusion is understandable, because a bill sits on a legislature’s own website in a document that looks exactly like law and often quotes the statute it would amend. A reader who searches for the Kentucky rate can land on an introduced bill and take away a number that never came into force. The distinction that matters is not where a document is hosted but whether it was passed.

The statute settles it, and settles it in a direction that helps: 3.5% is the enacted figure for 2026, and it is a reduction from the 4% that applied in 2025.

The rate cannot fall without the General Assembly acting

Kentucky has a rate-reduction mechanism keyed to the balance of its budget reserve trust fund and to general fund receipts, evaluated annually by the Office of the State Budget Director and reported to an interim joint committee each September.

It differs from the triggers in some other states in one respect worth knowing. The statute is explicit that the department shall not implement an income tax rate reduction without an action by the General Assembly. Meeting the conditions creates the opportunity for a cut; it does not cause one. So a Kentucky rate cannot change administratively mid-year, and a reported reduction that has not been passed into law is a proposal however favourable the underlying numbers look.

A flat rate on gains, with no holding-period benefit

Kentucky taxes capital gains as ordinary income at the flat rate. There is no state equivalent of the federal preferential ladder, no exclusion for long-held assets and no distinction between a sale after eleven months and a sale after eleven years. At the state level, the holding period buys nothing.

The flat structure does make one thing simpler: because there is only one rate, the size of your other income does not affect the state figure. A gain that would straddle two brackets in a graduated state is charged at a single Kentucky rate from the first dollar to the last.

How to check a Kentucky rate for any year yourself

Because the schedule is written as dated paragraphs, KRS 141.020(2) can be read directly for any year without needing a secondary source, and the method transfers to other states that draft the same way.

Find the paragraph whose date range contains the year you care about, and read the percentage in it. Paragraph (h) covers years from 2018 to 2023 at 5%; (d) covers 2023 at 4.5%; (e) covers 2024 and 2025 at 4%; (f) covers 2026 and after at 3.5%. The ranges are stated in the text, so a paragraph cannot silently go out of date the way a bare percentage can.

One caution when reading it. Paragraph (f) says "on or after January 1, 2026" with no closing date, which means 3.5% continues indefinitely until the General Assembly changes it — not that it expires at the end of 2026. An open-ended paragraph is the state saying the rate stands until further notice, and the reduction machinery in paragraph (g) is the route by which further notice would arrive.

What Kentucky does not change

Your federal treatment is unaffected. The 0/15/20% long-term rates, the 3.8% net investment income tax, the Section 121 home-sale exclusion and Section 1250 recapture all apply as they would in any state. Kentucky adds a flat layer on top of that federal result.

The state figure here approximates Kentucky taxable income with federal ordinary taxable income. Kentucky applies its own standard deduction and its own additions and subtractions, none of which are modelled, so the state number is close for a simple wage-and-sale year and rougher where a return carries state adjustments. Some Kentucky localities also levy occupational or net profits taxes, which are outside the scope of this calculator.

A worked Kentucky example

Every figure below is computed by the same engine that powers the calculator above, at the moment this page was built — not typed in by hand. When the tax-year data is updated, this example updates with it.

A $220,000 gain on a joint return

A married couple filing jointly in Kentucky with $140,000 of income sells long-held shares for a $220,000 gain.

Taxable income after deduction: $327,800
Taxable gain: $220,000
Tax owed without the sale: $13,140
Tax the sale added: $37,180
of which net investment income tax: $4,180
Total federal tax: $50,320
Kentucky state tax: $7,700
Effective rate on the gain: 16.9%

Kentucky takes a flat 3.5% of the gain regardless of the couple’s other income. At the 4% that applied in 2025 the same sale would have cost $1,100 more, which is the practical size of one year of the phase-down.

Caveats on this example (1)

Net investment income was derived from capital gains and qualified dividends only. Interest, non-qualified dividends, rents, royalties and passive business income inside ordinaryIncome are also net investment income under IRC 1411(c) and are not counted here.

Show the working — 13 steps, each with its citation

Net short-term capital gain or loss for the year$0Short-term / long-term nettingIRC 1222; IRS Pub. 550
Assets held one year or less. Taxed at ordinary rates if a net gain.
Net long-term capital gain or loss for the year$220,000Short-term / long-term nettingIRC 1222; IRS Pub. 550
Assets held more than one year. Eligible for the 0/15/20% rates.
Standard deduction-$32,200Deduction from adjusted gross incomeRev. Proc. 2025-32 4.14(1) (IRC 63(c)(2))
Adjusted gross income of $360,000 less $32,200.
Taxable income$327,800Taxable incomeIRC 63(a)
The figure the rate tables and the capital gain ceilings are both measured against.
Ordinary income taxed at 10%$2,480Ordinary income tax bracketsRev. Proc. 2025-32 4.01 (IRC 1(j)(2))
$24,800 of taxable income between $0 and $24,800.
Ordinary income taxed at 12%$9,120Ordinary income tax bracketsRev. Proc. 2025-32 4.01 (IRC 1(j)(2))
$76,000 of taxable income between $24,800 and $100,800.
Ordinary income taxed at 22%$1,540Ordinary income tax bracketsRev. Proc. 2025-32 4.01 (IRC 1(j)(2))
$7,000 of taxable income between $100,800 and $107,800.
Ordinary income stacked below the long-term gain$107,800LTCG bracket stackingIRC 1(h); Schedule D Tax Worksheet, Form 1040 instructions
Long-term gain is taxed by reference to where it sits ON TOP of $107,800 of other taxable income, not from the bottom of the rate table.
Long-term gain taxed at 15%$33,000LTCG bracket stackingRev. Proc. 2025-32 4.03 (IRC 1(h), 1(j)(5))
Gain between the $98,900 zero-rate ceiling and the $613,700 15% ceiling.
Net investment income tax threshold$250,000IRC 1411 thresholdIRC 1411(a)-(b); 26 C.F.R. 1.1411-2
Modified AGI of $360,000 against the $250,000 threshold for married filing jointly. This threshold is statutory and is not adjusted for inflation.
Net investment income tax at 3.8%$4,180Net investment income taxIRC 1411(a)-(b); 26 C.F.R. 1.1411-2
3.8% of $110,000, the lesser of net investment income ($220,000) and the amount by which modified AGI exceeds the threshold ($110,000). Here the binding figure is the excess of modified AGI over the threshold.
Kentucky income tax at 3.5%$7,700State flat income tax on capital gainsKy. Rev. Stat. 141.020(2)(f)
Flat 3.5%, taxing capital gains as ordinary income. KRS 141.020(2)(f): "For taxable years beginning on or after January 1, 2026, the tax shall be three and one-half percent (3.5%) of net income." A SEARCH RESULT CLAIMED 4% FOR 2026, citing HB 152 of the 2026 session — that is an INTRODUCED bill, not an enacted one, and the statute disproves it. KRS 141.020(2)(g)4.b also provides that "the department shall not implement an income tax rate reduction without an action by the General Assembly", so the rate cannot move mid-year by administrative action.
Total tax$58,020Sum of all tax stepsRev. Proc. 2025-32 (I.R.B. 2025-45)
$58,020 on $360,000 of total income, an effective rate of 16.12%.

What this calculator does not cover for Kentucky

The Kentucky figure stacks your gain on your federal ordinary taxable income. Kentucky computes its own taxable income with its own additions and subtractions, which are not modelled here — so treat the state number as a close approximation for a straightforward wage-and-sale situation, and as a rough one if your return carries significant state adjustments.

Full-year residency is assumed throughout. Part-year residents, non-residents, and gains sourced to property in another state all turn on rules this calculator does not model. The complete list of what is in and out of scope is on the methodology page.

Other states

See the full 2026 capital gains guide for the federal rules that apply wherever you live — the rate ladder, the net investment income tax, the home-sale exclusion and depreciation recapture — plus every state we currently cover.