Kentucky, with its ready access to the Appalachians and its warm humid summers and mild winters has many attractive places to retire, including Glasgow, Danville, Campbellsville, Madison, Maysville, Murray, Morehead, and Richmond, which are certified retirement communities. Other favored locations include Berea, one of the fastest growing towns in the country; Bowling Green, a college town in southwest Kentucky about an hour’s drive from Nashville, making the 2007 list of ‘Top Ten Value Towns’ for retirees; and Murray, located near one of the largest man-made lakes in the country.
Kentucky has a relatively low cost of living and state and local taxes are at the midpoint in the U.S. The Tax Foundation ranked Kentucky 25th among the states in 2008 in terms of the overall state and local tax burden.
The Kentucky state income tax is 2% on the first $3,000 of taxable income, up to a maximum of 6% on taxable income over $75,000. You can either itemize deductions or claim the standard deduction ($2,190 for 2009). You can deduct medical and dental expenses to the extent they exceed 7.5% of your adjusted gross income. Medical and dental health insurance premiums, including long-term care insurance premiums that you pay with after-tax dollars are also deductible.
Social security and railroad retirement benefits and distributions from a Roth IRA are exempt from Kentucky state income tax. You can exclude up to $41,110 for military, civil service, state and local government, qualified private pensions, and annuities. This exclusion amount is no longer subject to a price-level adjustment as it was previously.
You can claim a personal credit of $20 each for yourself, your spouse and your dependents. If you are 65 or older, you can claim an additional personal tax credit of $40. There is another tax credit available in Kentucky that is based on your income level and your family size. The income threshold amounts in effect for 2008 were $10,400 for an individual, $14,000 for a family of two, $17,600 for a family of three and $21,200 for a family of four or more.
Property taxes in Kentucky are levied at a state and local level on 100% of the fair cash value of the property. The property tax rates are expressed as an amount per $100 of assessed value can vary by location. You can find a table of 2008 property tax rates by location on the Kentucky Department of Revenue website. There is also an interactive map where you can look up the rates by county in Kentucky.
Homeowners who are age 65 or older, or totally and permanently disabled can claim a homestead exemption in Kentucky. The amount of the exemption is adjusted for inflation every two years and for 2009 and 2010 is $33,700.
Kentucky has a 6% state sales tax. Food, prescription drugs, medical supplies, and residential utilities except telephone are exempt. There is an equivalent 6% use tax on purchases you make out of state that are brought into Kentucky. You can reduce the amount of Kentucky use tax by the sales tax you paid in another state.
A 6% motor vehicle usage tax is charged on every motor vehicle used in Kentucky. The tax is collected by the county clerk when registering the vehicle for the first time in Kentucky or when ownership is transferred.
Sources: Bankrate – State Tax Roundup – Kentucky
Best Kentucky retirement towns and communities – Top Retirements Retirement Living Information Center – Taxes by State – Kentucky
Kentucky’s State and Local Tax Burden, 1977-2008 – Tax Foundation
