The Quick Read: In Montgomery County, Maryland, a DSCR cash-out refinance is taxed only on the new debt above the unpaid principal you are paying off, not on the whole loan, so the recordation bill grows with your cash-out amount rather than your loan size, and it comes out of your net proceeds. The DSCR loan itself does not change the tax. The tax follows the deed of trust being recorded and the debt it adds. (This is Montgomery County, Maryland. Other Montgomery Counties have different recording rules.)
- The taxable slice is roughly your cash-out plus any closing costs rolled into the new loan.
- The county charges stacked brackets, and each bracket rate rises as the taxed amount grows.
- The exemption for the payoff balance depends on a sworn statement that you are the original mortgagor.
- The tax is a one-time closing cost. It is not part of the monthly payment the DSCR ratio tests.
- Moving title into an LLC for the loan can add a separate tax question you should settle before closing.
What Does Recordation Tax Actually Tax on a Refinance?
Recordation tax is charged for putting a new loan document on the public record, and on a refinance it applies to the new money, not the old balance. Your payoff amount is exempt up to the unpaid principal. Only the amount above it is taxable.
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Here is the mechanic in plain steps. Your new DSCR loan is secured by a new deed of trust, which is the document that pledges the property as collateral. Recording that document triggers the tax. The settlement agent collects it along with the recording package.
The statutory basis is Maryland’s tax-property code. Section 12-108 exempts a new mortgage or deed of trust to the extent it refinances an amount not greater than the unpaid principal of the existing loan. The borrower has to put a statement in the recitals, or file a sworn affidavit. That statement names the borrower as the original mortgagor and gives the exact unpaid principal being refinanced.
Does this cover rentals? Yes. The exemption reaches beyond principal residences to second homes and rental properties, and Shulman Rogers notes it still requires the refinance affidavit. An investment property gets the same exemption as a home, provided the paperwork is in order.
How the Tax Is Calculated, Step by Step
The formula is simple: new principal secured, minus the unpaid principal being paid off, equals the taxable base. Then the county applies its per-$500 rates to that base. Whole amounts round up to the next $500, according to the county’s MC311 page.
Take it in order:
1. Start with the new loan amount. This is the principal that the new deed of trust secures.
2. Subtract the payoff principal. Only principal counts. Accrued interest, fees, and prepayment charges in a payoff figure do not enlarge the exemption.
3. What remains is the taxable slice. In a DSCR cash-out, that is your cash-out plus any closing costs you roll into the loan.
4. Apply the bracket rates. The county charges per $500 of taxable amount.
5. Add the recording fees. These are separate and small next to the tax.
Two modeled examples show the effect. Both use assumed round numbers, not market data.
First, a simple case: a $250,000 balance refinanced into a $300,000 loan exempts the first $250,000 and taxes the remaining $50,000 as new debt. LegalClarity uses this same example to explain the rule.
Second, a typical cash-out: say a $450,000 new loan pays off $300,000 of principal. That leaves a $150,000 taxable slice. At the base rate of $4.45 per $500, that is 300 units, or $1,335. With no exemption, the same loan would be 900 units, or $4,005. The exemption cuts the bill by roughly two-thirds here, and the gap widens as the payoff balance grows relative to the new loan.
These numbers ignore a bracket question covered below, so treat them as the low end of what a slice that size could cost.
What Are the Current Rates?
The base rate is 0.89% on amounts up to $500,000, and the rates step up above that. Ballard Spahr lists the brackets that took effect under Bill 17-23:
| Taxable amount | Marginal rate | Per $500 |
|---|---|---|
| Up to $500,000 | 0.89% | $4.45 |
| $500,000 to $600,000 | 1.35% | $6.75 |
| $600,000.01 to $750,000 | 2.04% | $10.20 |
| $750,000.01 to $1,000,000 | 2.156% | Not listed |
| Above $1,000,000 | 2.27% | Not listed |
The per-$500 figures for the first three tiers come from Starfield & Smith, a title-industry practitioner. Rates are set per $500 and shown as percentages for convenience. The base of $4.45 per $500 matches the 0.89% figure.
One caution on freshness. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Before you budget, have the settlement agent or the county Department of Finance confirm the live schedule.
Does Transfer Tax Apply to a Refinance?
Generally no. Transfer tax attaches to a conveyance of the property, meaning a deed that changes ownership. A plain cash-out refinance does not convey anything, so recordation tax is the refinance cost.
Here is where it can change. If you deed the property into an LLC to take the DSCR loan, that deed is a conveyance. It could carry its own transfer and recordation tax. Whether an exemption applies is a question for the settlement agent or county Finance, so get the answer in writing before you move title.
How a Cash-Out Sizing Decision Plays Out
The tax rewards a high payoff balance and penalizes a big cash-out on a low-balance property. That is unusual among closing costs, because most scale with the total loan. Here, what matters is the new debt you create.
Consider two investors with the same new loan size. One has a large remaining balance and takes modest cash-out. The other owns the rental nearly free and clear, and takes most of the loan as cash. The first investor taxes a small slice at the base bracket. The second taxes a much bigger slice, and some of it may land in the higher brackets.
Layer in the DSCR program limits. Across most of the network, cash-out tops out around 75% LTV on an investment property, and lenders typically want about 6 months of ownership measured from title recording. You will also typically see about 6 months of PITIA in reserves, with about 9 months above $1,500,000. Loans range up to $3,000,000 on standard programs, subject to lender guidelines. Reviewing your equity against those limits comes first. The tax decides how much of the allowed cash-out is worth taking.
A practical test: ask the settlement agent for the recordation figure at two or three cash-out sizes. If the last slice of cash costs you meaningfully more in tax, trimming the cash-out can make sense.
The tax does not touch DSCR underwriting. DSCR is a ratio of rent to the full monthly payment, and recordation tax is a one-time closing cost, not a monthly obligation. It lowers your net proceeds. It does not lower your coverage ratio. Strong coverage on a property is also not the same as positive cash flow, since repairs, vacancy, and management sit outside the calculation.
Lendmire’s piece How Much Recordation Cost a DSCR Cash-Out Carries by County shows how this same exercise plays out in other jurisdictions.
Where the General Rule Breaks
The exemption is clean on paper, but several edge cases can change the bill. Treat each as a question for your settlement agent, not as an assumption.
The original mortgagor test. The statute defines the original mortgagor broadly. It includes someone who assumed the debt and paid recordation tax on the purchase price, and a trustee of an inter vivos trust. LegalClarity says a spouse added to the loan beside the original mortgagor does not defeat the exemption. It also warns that a false claim can void the exemption retroactively, with tax and interest due.
An LLC borrower with an individual’s old loan. Law-firm commentary says entities can qualify, but only as the original mortgagor. Whether the exemption carries over when the new DSCR borrower is an LLC and the old loan sat in an individual’s name is a question to put to county Finance or a real estate attorney. Ask before you assume the exemption survives the switch.
Which bracket applies to the taxable slice. The rates are marginal, but whether the county sets the bracket on the slice alone or on the total debt secured is a question to put to county Finance. If the bracket follows total debt, a modest slice on a large loan could cost more than the base rate suggests.
The purchase-money and BRRRR chain. A purchase-money deed of trust recorded at the same time as the deed is exempt. The later refinance is then taxed only on the difference between payoff principal and the new loan. How rehab-draw or credit-line balances count as unpaid principal is a question for the title company.
Affidavit forms. Some counties use their own refinance affidavit forms, per JGL Law. The settlement agent will know which one Montgomery County wants.
Other jurisdictions. Washington, D.C. has a comparable refinance exemption with its own conditions. Do not carry the Montgomery County rule across county lines.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Key Terms Defined
Recordation tax: a one-time tax charged for recording a loan document, such as a deed of trust, on the public record.
Transfer tax: a tax charged when ownership of a property changes hands by deed.
Deed of trust: the recorded document that pledges the property as collateral for the loan.
Original mortgagor: the borrower who took out the loan being refinanced, as the statute defines the term, including certain assumptors and trust settlors.
Unpaid principal: the principal still owed on the old loan, not counting interest, fees, or penalties.
DSCR: debt service coverage ratio, which compares a property’s rent to its full monthly payment of principal, interest, taxes, insurance, and any association dues.
PITIA: principal, interest, taxes, insurance, and association dues, the monthly payment the coverage ratio tests.
Seasoning: the waiting period between buying a property and refinancing it for cash out.
What to Do Before You Apply
Run this short list before you commit to a cash-out amount.
- Pin down the payoff principal. Ask for the unpaid principal balance, separate from accrued interest and fees.
- Confirm who the original mortgagor is. Check whether the current borrower matches the one on the loan being paid off.
- Decide on the LLC early. If title will move, ask about tax on the deed before you do it.
- Request tax figures at several cash-out sizes. Do this through the settlement agent.
- Net the tax against your proceeds. Your cash-to-close math should subtract recordation tax from the cash-out.
- Recheck the live rates. The county’s reference page may lag the current schedule.
DSCR loans are designed for non-owner-occupied investment properties, and they qualify primarily on property-level rental income covering the payment, subject to lender guidelines. Tax treatment varies; consult a qualified professional. Lendmire’s complete DSCR loans guide covers how the program works from start to finish.
Frequently Asked Questions
Is the whole new loan taxed when I refinance in Montgomery County, Maryland?
No. Only principal above the unpaid balance of the loan being paid off is taxed, provided you file the required statement or affidavit as the original mortgagor. Without the exemption paperwork, the whole loan could be taxed, which in the modeled example above would triple the bill.
Does the exemption cover rental properties held for investment?
Yes. The exemption has extended to second homes and rental properties, and to entities, so it is not limited to owner-occupied homes. You still have to sign the affidavit or include the recital, and you have to qualify as the original mortgagor.
Does the DSCR ratio change what I pay in recordation tax?
No. The tax depends on the new debt created and the brackets it falls into, not on rent or coverage. Recordation tax is a one-time closing cost, so it is not part of the monthly payment the ratio measures.
Can accrued interest or a prepayment charge increase my exemption?
No. The exemption equals unpaid principal only. Interest, fees, and prepayment charges in a payoff figure do not enlarge it, so they do not reduce the taxable slice.
Does moving the property into an LLC change the tax?
A deed into an LLC is a conveyance, and it could carry its own transfer and recordation tax. Whether the refinance exemption still applies when the borrower changes is a question for the settlement agent or county Finance.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. As a broker, Lendmire arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Any program is subject to lender guidelines and is not a commitment to lend.
Montgomery County’s brackets climb past $500,000, so the last dollar of cash-out is the one that costs the most.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Maryland General Assembly, Tax-Property §12-108
2. Shulman Rogers, Maryland real estate update
4. LegalClarity, Maryland recordation tax exemptions
5. Ballard Spahr, DMV transfer and recordation taxes
6. Starfield & Smith, Maryland recording taxes
7. JGL Law, Maryland recordation tax changes
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR Cash-Out Recordation Rules for Montgomery County, Maryland · DSCR Cash-Out Recordation Rules for an Out-of-State Maryland Owner · DSCR Cash Out Refinance in Mount Sterling, Kentucky: A 2026 Guide to Downtown Rental Equity
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.