Lexington's Net Profits Fee Can Reach a Property Sale
On January 1, 1974, the City of Lexington and Fayette County merged into the Lexington-Fayette Urban County Government, so one government covers the whole county. Its occupational license fee is 2.25 percent of a business's net profits. Individuals must file the Net Profits License Fee Return (Form 228) once gross rents from Fayette County real property reach $50,000 a year, and corporations and partnerships that rent property are treated as in the rental business regardless of rent collected.
The 2025 instructions say licensees include in net profits any capital gain from selling real property that is part of their rental business, and property is presumed to be part of that business if the $50,000 test was met in the current or prior year. The return starts from gains reported on federal Forms 4797 and 6252, so ask your tax advisor how a deferred exchange appears on Form 228.
Sources: Lexington-Fayette Urban County Government: history of merger; LFUCG: occupational license fee rates; LFUCG: 2025 net profits license fee instructions
Kentucky State Tax and Fayette County Recording
At the state level, Kentucky taxes net income at a flat 3.5 percent for 2026, with no lower rate for capital gains. Kentucky follows the Internal Revenue Code as of December 31, 2025 and lists no Section 1031 adjustment, so federal deferral generally carries through to the Kentucky return.
At closing, the seller pays Kentucky's transfer tax of $0.50 per $500 of value, which the Fayette County Clerk collects before recording the deed. Deeds are recorded in the clerk's office of the county where the property is located.
Sources: KRS 141.020 (Kentucky income tax rate); KRS 141.010 (Kentucky IRC conformity); KRS 141.019 (Kentucky adjusted gross income); KRS 142.050 (Kentucky real estate transfer tax); KRS 382.110 (where deeds are recorded)
Planning a Lexington Exchange With 1031 Federal Exchange
Because the local fee and the state tax both turn on how the sale is reported, bring your CPA in early. We set up the exchange before closing, keep the proceeds out of your hands, and confirm your written identification by Day 45. Steve Wolterman, an attorney, oversees the exchange documents, and your replacement property can be in Kentucky or any other state.
Lexington, KY 1031 Exchange Questions
Do I owe Lexington's net profits fee when I sell a rental?
It can apply. LFUCG's 2025 instructions say licensees include in net profits any capital gain from selling real property that is part of their rental business, presumed when Fayette County gross rents reached $50,000 in the current or prior year. Ask your tax advisor how a deferred exchange is reported on Form 228.
Who records my deed in Lexington?
The Fayette County Clerk. Kentucky law requires recording in the clerk's office of the county where the property is located, and the clerk collects the seller's transfer tax of $0.50 per $500 of value before recording.
State tax facts on this page were checked against official Lexington, KY sources in November 2026. Tax rules change, and this page is general information, not tax advice for your situation. Confirm the details with your tax advisor before you sell.
Ready to plan a 1031 exchange on your Lexington investment property? Contact 1031 Federal Exchange today.