Quick answer: a flat 3.5% state tax for 2026, treated exactly like ordinary income — no distinction for how long the house was held. See the full cost picture in the Kentucky probate real estate sale calculator.
One rate, no holding-period distinction
A rate legislated to keep falling
Kentucky's flat rate dropped from 4% in 2025 to 3.5% for 2026, part of a schedule under House Bill 8 that triggers further automatic cuts whenever the state's revenue conditions are met — one of the more distinctive, gradually-phasing-down income tax structures among the states.
A separate question from the inheritance tax
Kentucky's inheritance tax is assessed on the beneficiary by class at the time property passes to them — a completely different calculation from the income tax owed later on any gain realized when the house is actually sold.
The stepped-up basis still helps
Regardless of Kentucky's rate, the house's basis resets to its fair market value on the date of death for federal purposes, and Kentucky's calculation follows that same starting point — only appreciation after death is taxable, keeping the gain small on a prompt sale.
A local probate attorney can review your estate — many offer a free consultation.
The 3.5% flat rate applies identically whether the sale closes in Jefferson, Fayette, Kenton, or any other Kentucky county, though some smaller cities layer their own local occupational tax on wages specifically, not capital gains.