The Quick Read: In the District of Columbia, recordation tax on a DSCR cash-out refinance is generally charged on the new money rather than the whole new loan, meaning the new principal minus the existing balance, provided tax was already paid or exempt on that old debt, so the tax grows with the cash you pull and the costs you finance.
- The tax base is the new loan minus the payoff principal, not the original loan amount.
- A flat $150 recording fee for the deed of trust sits on top of the percentage-based tax.
- The tax never enters the DSCR coverage math, but it comes out of your net proceeds.
- Changing the borrower at the refinance, or an untaxed prior loan, can push the base back toward the full loan.
- Your title agent should compute the figure early, because the payoff letter and prior recording details drive it.
What Recordation Tax Is and What It Hits
Recordation tax is a charge for putting a document on the public land record. For a Washington DC rental owner doing a cash-out, that document is the new deed of trust, the security instrument that pledges the property for the loan.
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Mortgages and deeds of trust carry recordation tax only. The separate transfer tax applies to deeds and is customarily a seller cost, according to Ballard Spahr’s summary of DMV transfer and recordation taxes. If your cash-out is a plain refinance with no deed changing hands, transfer tax does not enter the picture.
The tax is also not the same as the recording fee. The District’s Recorder of Deeds lists a $150 fee to record any deed of trust, mortgage, or modification. That fee is fixed. The percentage tax is the variable part, and it is the piece that moves with the size of your cash-out.
Investors often assume the tax is a percentage of the whole new loan. It usually is not on a true refinance, and the next section shows why.
The Base: New Money, Not the Whole Loan
DC taxes the increase over the existing debt. The District’s tax office states this in its notice on taxation of refinances and modifications, and the D.C. Code provision on recordation tax points the same way. Tax applies only to new debt above the existing principal balance.
Under the notice, a security instrument is taxed at 1.45%. The exception is residential property transferred for consideration under $400,000, which is taxed at 1.1%. How that consideration test applies to a refinance with no sale is not spelled out in the notice, so ask your title agent which tier they apply to your file.
Here is the step-by-step logic:
1. Take the face amount of the new loan. 2. Subtract the principal balance of the old loan being paid off. This is the actual payoff principal, not the original loan amount. 3. Multiply the difference by the applicable tax percentage. 4. Add the flat $150 recording fee.
The exemption on the old balance holds only to the extent tax was already paid on that debt or the debt was exempt. Purchase-money mortgages are treated as exempt in the notice’s language. If you bought the property with a normal purchase loan and have not touched it since, the old balance is generally in good shape.
On a cash-out, the new loan exceeds the payoff by the cash to you plus any costs rolled into the loan. That excess is the base. Whether financed closing costs count follows from the formula of face amount minus existing balance, though no source states it word for word, so confirm it with the settlement agent.
Worked Examples in Percentages of Value
Dollar figures would imply a quote, so these scenarios use percentages of the property’s value. They are modeled assumptions, not market data. Each one assumes a standard rental at the 75% LTV cash-out ceiling that applies across most of Lendmire’s wholesale network, and each one assumes the 1.45% tax tier. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
| Scenario | Payoff | New loan | Taxed base | Tax (% of value) |
|---|---|---|---|---|
| Large cash-out | 40% of value | 75% | 35% of value | About 0.51% |
| Modest cash-out | 65% of value | 75% | 10% of value | About 0.145% |
| Payoff only | 75% of value | 75% | Near zero | Near zero |
| Prior debt never taxed | 40% of value | 75% | Up to 75% of value | About 1.09% |
The last row is the swing. If the old balance was never taxed and no exemption applies, the notice says that balance is taxed when the refinance is recorded. Your base then moves toward the full loan. Add the $150 fee to every row.
Percentages of value translate into dollars through your own price and payoff, so run your actual numbers with the title agent. The illustrative calculator on the site can help you estimate how a cash-out changes the loan size, but treat it as a rough guide only.
Why Financing the Costs Does Not Help Much
Rolling costs into the loan can feel like free money. It is not, for two reasons.
First, financed costs raise the new loan, and the extra principal is part of the taxed base. A bigger loan means a bigger tax, which can tempt you to finance that too. The circle is small, but it exists.
Second, the 75% LTV ceiling on a cash-out caps the total loan no matter how you split it. Whatever recordation tax and other costs take comes out of what you net. Eligibility for a given cash figure depends on rent used for lender review, the full monthly obligation, reserves, and that 75% ceiling, so no cash figure is guaranteed. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Where Recordation Sits in the DSCR Math
DSCR compares monthly rent to the full monthly housing obligation: principal, interest, taxes, insurance, and any association dues. Recordation tax is a one-time cost, so it never enters that ratio. Your coverage number does not change because the tax exists.
The cash-out itself does change coverage. A larger new loan raises the monthly obligation and can lower the ratio. A coverage of 1.00 is where many select programs start, and stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
Clearing 1.00 is not the same as positive cash flow. Repairs, vacancy, management, and utilities sit outside the calculation. The tax is another reason to size your cash-out by what you will actually net, not by the headline loan amount.
The rest of the file follows the usual cash-out pattern across most programs we place:
- About 6 months of ownership, measured from title recording, is the common expectation before a cash-out.
- Credit scores of 620 and up appear in parts of the network. Most programs want around 660, and 700+ unlocks the strongest leverage tiers.
- Reserves commonly run about 6 months of the full monthly obligation, stepping up to about 9 months above $1,500,000.
- Standard programs reach loans up to $3,000,000, subject to lender guidelines.
For the full picture of how these pieces fit together, see the complete DSCR loans guide.
Where the General Rule Breaks
The new-money rule has conditions. These are the cases that can raise your bill.
Changing the borrower. The District’s notice compares the obligor on the old debt with the obligor on the new debt to decide whether a deal is a refinance. Ballard Spahr reads the update as requiring the refinancing loan to go to the same obligor as the original loan. The tax form also asks whether the borrower and the property are the same for the old and new debt.
This matters for investors who hold property personally and want to move it into an LLC for the cash-out. Some DSCR programs lend to LLC-titled borrowers, subject to lender program eligibility. If the entity change defeats refinance treatment, the full new loan could become taxable. The sources do not state the exact result, so confirm with your title agent before vesting the property in an entity. A deed into an LLC at closing can also add deed-side recordation, a separate cost.
Prior tax never paid. A short-term or private loan that was recorded without tax can leave the old balance taxable at the refinance. This applies to hard-money payoffs and bridge loans. The notice puts the burden on you to substantiate that the old debt was taxed or exempt, so the result depends on the paperwork.
Modifications. Under the notice, any amendment, modification, or restatement is treated as a refinance of the entire aggregate debt unless nothing about the terms changes and no borrower action is involved. Tax then applies to the modified debt above the existing principal balance.
Residential carve-outs. The notice includes treatment for certain residential property. Its scope here is not clear, so ask your title agent whether it touches your file.
Conflicting online claims. Some title-company pages say DC refinances owe no recordation tax, and others say 1.45% applies to the whole loan. The District’s own notice controls. Treatment of investor-owned property is the main open question, so settle it with the settlement agent, not a web page.
The first-time homebuyer rate. The reduced rate is for qualifying owner-occupant deed transfers, not an investor’s cash-out.
Lendmire’s piece DSCR Cash-Out Recordation Rules for the District of Columbia covers the rules side in more detail.
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.
Documents Your Title Agent Will Assemble
The settlement agent files the District’s recordation tax form, and a separate form goes in for each deed of trust. The form instructions cover refinances and modifications. Title agents typically assemble a payoff letter and prior-instrument references to prove the old balance and its tax history.
The new deed of trust must state on its face that it is a refinance and reference the prior instrument or document number. Skipping that recital can cost you the exemption on the old balance.
A practical checklist before you commit:
- Confirm the recorded instrument number and tax history for your existing loan.
- Order a payoff letter that states the outstanding principal.
- Confirm the borrower on the new loan matches the borrower on the old loan.
- Ask for the tax computation on the draft closing statement.
- Review the figure against your 75% LTV math before you decide how much cash to take. Every figure here varies by lender and program, so guidelines, property type, leverage, and credit profile all apply.
Key Terms Defined
Recordation tax: a charge for recording a document, such as a deed of trust, on the public land record.
Deed of trust: the security instrument that pledges the property as collateral for the loan.
Transfer tax: a separate tax on deeds, customarily paid by the seller, that does not apply to a deed of trust.
Obligor: the party who owes the debt, which the tax office compares between the old and new loans.
Payoff principal: the actual unpaid balance of the existing loan at the time of the refinance.
Seasoning: the ownership period a program expects before it allows a cash-out, measured from title recording.
How to Decide What Cash-Out to Take
A smart cash-out decision treats the tax as a line item that scales with the amount you pull. Pulling less cash lowers the taxed base. If the extra cash does not earn more than the tax and other costs, a smaller cash-out may serve you better.
This is the tradeoff in practice. A large cash-out funds the next acquisition but brings a larger base. A payoff-only refinance has a near-zero base, though the flat fee still applies. A middle path pulls just enough for a down payment and leaves the rest as equity.
Plan for both tests. The strongest files clear enough equity under the 75% LTV ceiling and enough rental coverage on the larger loan. A larger loan that drops your coverage below your program’s floor stops the deal no matter how clean the tax math looks. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Frequently Asked Questions
Is recordation tax charged on the whole new loan in DC?
Usually not on a true refinance. The District’s tax office taxes the new principal above the existing balance, provided the old debt was taxed or exempt. If the old debt cannot be shown to have been taxed, or the borrower changes, the base can move toward the full loan.
Is the $150 recording fee the same as the tax?
No. The $150 fee is a flat charge to record the deed of trust. The tax is a percentage of the taxed base, and it is the part that grows with your cash-out.
Does recordation tax change my DSCR?
No. DSCR compares rent to the monthly obligation, and a one-time tax never enters that ratio. It does reduce your net proceeds, and the larger loan from the cash-out raises your monthly obligation.
Can I move the property into an LLC at the cash-out?
Some programs allow it, subject to lender program eligibility. Changing the obligor can defeat refinance treatment under the District’s notice, so confirm the tax result with your title agent before you vest the property in an entity.
Do I have to wait before taking cash out?
Most programs expect about 6 months of ownership, measured from title recording, before a cash-out. The ceiling is 75% LTV on a standard rental, and reserves, credit, and coverage rules apply, all subject to lender guidelines.
Next Steps
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. Start by asking your title agent for the recordation computation, then compare it against the cash you actually need.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker that arranges DSCR investor financing through select lenders in its wholesale network, across 41 markets including Washington, D.C. DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines. Nothing here is a commitment to lend. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Ballard Spahr, Navigating Transfer Tax and Mortgage Recordation Tax in the DMV Area
2. District of Columbia Recorder of Deeds FAQs
3. District of Columbia Office of Tax and Revenue, Taxation of Refinances and Modifications
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 Refinance Requirements on a Single-Family Rental · Should You Refinance a $3 Million Rental With DSCR Cash Out? · Is a Super Jumbo DSCR Cash-Out Refinance Right for Your Rental?
Guides: Investment Property Cash-Out Refinance in Washington, D.C.
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.