The Quick Read: It depends on four things: how much of your gain is prior depreciation, whether you want to stay invested, whether the rent still covers a larger loan, and whether the loan you need sits under $3,000,000. Keeping the property and refinancing avoids a taxable sale, but the loan has to fit the size ladder and the rent has to carry it. Selling ends the debt question and may trigger a tax bill, so confirm the details with a qualified tax professional.
- A long hold usually means low basis, so a sale can produce a larger tax bill than the owner expects.
- A cash-out refinance is a loan, not income, but it raises the monthly obligation that rent must cover.
- Through select wholesale programs, cash-out runs 75% to $1,000,000, 70% to $1,500,000, and 60% to $3,000,000, with none above $3,000,000, all subject to underwriting.
- A 1031 exchange defers tax; it does not erase it.
- Your CPA owns the tax answer. The broker sizes the loan and shows which gate binds.
What Are You Really Deciding?
You are choosing between a disposition event and a financing event. A sale converts the asset to cash and a tax bill. A refinance keeps the asset, swaps the old loan for a new one, and may release cash. Those are different risks. One removes the property from your balance sheet. The other makes it carry more debt.
DSCR Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
On a rental held a decade or more, the numbers behave differently than on a recent purchase. The basis is low. The depreciation history is long. The old loan may be small or gone. Rent may lag the market. Systems may be aging. All of that feeds the choice.
For general background on how this loan type works, Lendmire’s complete DSCR loans guide covers the basics before you get into the size ladder.
Key Terms Defined
Super jumbo: An informal lender label for very large loan balances, not a legal category. In Lendmire’s network, the standard DSCR program stops at $3,000,000, and the portfolio investor program carries qualified investors beyond it.
DSCR: Debt service coverage ratio, which is monthly rent divided by the full monthly obligation on the loan, including taxes, insurance, and any HOA dues.
Depreciation recapture: The part of a sale gain tied to depreciation you already deducted, taxed on a different schedule than the rest of the gain.
Boot: Cash or other non-like-kind value received in a 1031 exchange that is not reinvested, which is taxable.
Repricing: Replacing your whole old balance with a new loan on new terms, not only the cash you pull out.
Basis: Purchase price plus capital improvements, minus accumulated depreciation.
What Does a Decade of Ownership Do to the Numbers?
It shrinks your basis and grows your exit tax. Adjusted basis is purchase price plus capital improvements minus accumulated depreciation. Residential rental buildings depreciate over 27.5 years, according to 1031 Capital Advisors. Ten-plus years of deductions leave a big slice of your gain tied to depreciation.
That slice is the problem. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. The rest of the gain is taxed at ordinary long-term capital gains rates. Recapture applies to depreciation allowed or allowable, so skipping the deduction does not avoid it.
Then there is the net investment income tax. The IRS says individuals owe 3.8% on the lesser of net investment income or the amount their modified adjusted gross income exceeds a threshold. Those thresholds are $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for single or head of household. Nolo explains that a rental sale gain counts as net investment income, so a one-time sale can push a normally lower-income taxpayer over the line. Real estate professional status or material participation may change this. That is a CPA question.
State tax may apply on top. It varies by state, so model it with your tax professional.
Tax treatment varies by investor and by how the property is held; consult a qualified tax professional before relying on any of this.
What Does a Sale Actually Release?
A sale releases sale price minus selling costs, minus the loan payoff, minus the tax. Take those lines in order.
1. Start with the contract price.
2. Subtract selling costs and any loan payoff.
3. Split the gain into the depreciation slice and the remainder.
4. Apply the recapture rate to the first and the long-term rate to the second.
5. Add NIIT if income crosses the threshold, then state tax.
What is left is your net. On a long hold, that net can be well below the number on the listing. Selling also ends the rent stream and any future appreciation. The upside is clean: no new debt, no coverage test, and cash you can deploy anywhere.
What Does a 1031 Exchange Fix, and What Doesn’t It?
A 1031 exchange defers the tax. It does not remove it. The gain carries into the replacement property’s basis, so the low-basis problem follows you.
The structure is rigid. NAR describes the IRS 45-day identification deadline and the 180-day exchange period for completing both the sale and the replacement purchase. Those are statutory tax-code deadlines, not loan timelines. Practitioners add that a qualified intermediary must hold the proceeds, and that touching the cash voids the deferral. The 180 days can end earlier if your tax return is due sooner, including extensions.
A few more mechanics matter:
- You can identify up to three properties, or more if their combined value is within 200% of the property sold.
- Only real property qualifies.
- Debt must be replaced. Any shortfall is boot and is taxable.
- A Delaware Statutory Trust can serve as replacement property, but those interests cannot later be used as the relinquished property in another 1031.
A 1031 fits the investor who wants to stay in real estate but not in this asset. It does not fit the investor who wants cash.
What Does a Super Jumbo DSCR Cash-Out Release?
It releases equity without a sale, up to the limits of the size ladder. Across the wholesale network, the property qualifies primarily on rental income covering the payment, subject to lender guidelines, rather than on traditional personal-income documentation.
Here is the leverage ladder at coverage of 1.00 or higher, every figure a ceiling through select programs and subject to underwriting:
| Loan size | Purchase | Rate-and-term | Cash-out |
|---|---|---|---|
| $150K–$1M | 80% | 80% | 75% |
| $1M–$1.5M | 75% | 75% | 70% |
| $1.5M–$2M | 75% | 75% | 60% |
| $2M–$3M | 75% | 75% | 60% |
| $3M–$4M | 65% | 65% | — |
| $4M–$6M | 60% on review | 60% on review | — |
| $6M–$10M | 60% on review | 60% on review | — |
These bands are loan amounts, not property values. Compute value times leverage first, then read the band for that loan. The top cell in each band needs a certain score: 660 or better at the lowest band, 700 in the next, and 720 for the bands from $1.5M to $3M. A lower score takes a lower leverage cell in the same band. The program floor is 660 on loans to $3,000,000 and 700 above it.
Cash-out has its own rules. Proceeds are unlimited at or below 60% LTV on a cash-out refinance, and capped at $1,500,000 above 60%. Nothing is available above $3,000,000, and there is no cash-out above $1,500,000 for borrowers with credit of 680 or lower. Above $2,000,000, two appraisals apply. Reserves are typically six months on the subject property, or twelve for first-time investors, and cash-out proceeds never satisfy them.
Above $3,000,000, more conditions apply: a clean 0x30x24 housing history, 48-month seasoning after a credit event, citizens and permanent residents only, and no rural property, with no more than ten acres on a non-rural one. Every request above $4,000,000 is reviewed case by case before submission, and it is purchase or rate-and-term only.
Coverage deserves a plain word. A 1.00 ratio earns full leverage, and the ratio does not typically climb with loan size. Leverage, credit, reserves, and appraisals tighten instead. Coverage from 0.75 to 0.99 is a real path through select programs to $2,000,000, with LTV and terms adjusting, subject to underwriting. Interest-only runs 120 months on 30- and 40-year terms, to 75% leverage, with coverage of 0.75 or better qualified on interest, taxes, and insurance. For the cash-out mechanics at standard size, see Lendmire’s cash-out refinance for investment property page.
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.
How Do You Test Whether Repricing Is Worth It?
Compare the return on the cash you pull out against the extra cost of replacing the whole old balance. A refinance does not reprice only the cash. It reprices everything. If your old loan is cheap and small, the new, larger loan may cost more across the entire balance than the cash is worth.
Run it this way. Take the new obligation and divide the rent by it. If coverage lands near 1.00 or below, the larger loan leaves no cushion. Then ask what the extracted cash earns. Whatever your next best use of cash returns has to beat the carrying cost of the new loan, plus closing costs and any prepayment term on the old one.
Run two scenarios on the same property. In the first, a long-held rental in the $2M–$3M loan band has rent that clears roughly 1.2x on the new loan at 60% cash-out leverage. Coverage is comfortable, and the main gates are two appraisals, six months of reserves, and credit near 720 for that top cell. Keeping and refinancing works mechanically. In the second, the same property has rent that lands near 0.9x on the larger loan. That may be reviewable through select programs at reduced leverage to $2,000,000, with LTV and terms adjusting, subject to underwriting. Above that size, thin coverage plus tighter leverage often makes a sale, with or without a 1031, the cleaner path. These are illustrative ratios, not a quote.
Sell, 1031, Cash-Out, or Hold: Side by Side
| Factor | Sell | Sell + 1031 | DSCR cash-out | Hold as-is |
|---|---|---|---|---|
| Cash at closing | Net of tax | None to you | Within ladder limits | None |
| Tax event | Yes | Deferred | No sale | None |
| Keeps property | No | Swaps it | Yes | Yes |
| Debt after | None | Replaced | Larger | Unchanged |
| Main limit | Tax bill | Deadlines, boot | Size, leverage, coverage | Trapped equity |
Where Does the General Rule Break?
The rule “refinance beats sell” fails in a handful of places.
- Cash-out ceiling. Nothing is available above $3,000,000 of loan, and cash-out tops out at 60% above $1,500,000. A rental worth far more than that with a small mortgage may release little. In that pattern, selling plus a 1031 may be the only way to move meaningful equity.
- Thin coverage. The larger payment may pull the ratio below the level a lender wants. At least one other gate, such as credit or reserves, often binds before coverage does.
- Cost segregation. Reclassified components face section 1245 recapture at ordinary rates, up to 37%, not the 25% cap, per a CPA firm’s guide. Model the exit before you rely on it.
- Former residence. Section 121 may exclude some home-sale gain but not post-1997 depreciation, and ownership and use tests apply.
- Installment sale. Recapture can be due in year one.
- Trusts and entities. A trust can stay the vesting party on a super jumbo refinance if trustee authority is documented and a real person guarantees. Entity vesting works, with no layered entities, subject to lender program eligibility.
- Pooled loans. If the rental sits inside a multi-property note, selling one asset may involve release terms. Pooled structures can also be an alternative to selling at all.
- Estate planning. Some owners hold for heirs. That is a tax-planning topic for a CPA, not a loan topic.
Short-term-rental owners face one more rule. Those files are limited to $2,000,000 and require documented operating history, with income counted at a discount to gross.
A Decision Sequence
Work through these in order.
1. Does the rent still cover the new, larger obligation at roughly 1.00x or better? If not, lean toward selling.
2. Is the loan you need at or below $3,000,000? If not, no cash-out exists, and only purchase or rate-and-term applies.
3. Is the cash-out amount you want inside the ladder at your credit tier? If not, the loan cannot deliver it.
4. Do you want to stay invested in real estate? If yes, a 1031 is on the table. If no, a taxable sale or a refinance are the real options.
5. Is the depreciation slice large enough that the tax bill dominates? If yes, keeping and refinancing deserves a harder look.
6. Does your next use of the cash beat the carrying cost of the new loan? If not, hold without refinancing.
7. Does your CPA confirm the tax math? Do this before you sign anything.
What Should You Hand Your CPA and Lender?
For your CPA: purchase documents, a depreciation schedule, capital improvement records, and your income picture for NIIT. For the broker’s file: a lease or rent schedule, entity or vesting documents, reserve statements, and a credit profile. Appraisals follow on size, and two are required above $2,000,000. Clean entity documents and clear rent evidence give a lender fewer gaps to chase.
Frequently Asked Questions
Does a cash-out refinance trigger tax?
No, a loan is not income, so the proceeds themselves are not a taxable sale. But borrowing does not change your eventual profit, and the payment rises. Tax treatment varies; consult a qualified professional.
Can I use super jumbo DSCR to take cash out of a $5 million rental?
Not through this ladder. Cash-out ends above $3,000,000, and loans from $3,000,000 up to $10,000,000 are purchase or rate-and-term only, with every request above $4,000,000 reviewed case by case. If your goal is cash, selling or exchanging may be the only route.
Is “super jumbo” a defined legal category?
No. It is a lender label, and no regulator draws the line. In Lendmire’s network, the standard program stops at $3,000,000 and the portfolio investor program reaches up to $10,000,000, subject to underwriting.
Can a 1031 exchange replace a super jumbo refinance?
They solve different problems. A 1031 defers tax and moves you into new property, but debt must be replaced or the shortfall is boot. A refinance keeps the asset and releases equity as a loan, within size and leverage limits.
What if my rent only covers the new loan at under 1.00x?
Select programs in the network review coverage from 0.75 to 0.99 up to $2,000,000, but LTV and terms adjust, subject to underwriting. Above that size, thin coverage often makes selling cleaner.
If you are buying or refinancing a high-balance rental property and want to see how the numbers work, Lendmire can help you compare super jumbo DSCR loan options based on the property income, the loan balance, credit profile, leverage, and investor goals. Lendmire arranges these loans as a broker through select lenders across 41 markets, including Washington, D.C.
Lendmire’s self-employed mortgages page presents both super jumbo programs, bank statement and DSCR, side by side.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. 1031 Capital Advisors, Depreciation Recapture
2. IRS Topic 559, Net Investment Income Tax
3. Nolo, Medicare Tax on a Sale
4. NAR, Section 1031 Like-Kind Exchange
5. Hiltzik CPA, Depreciation Recapture Guide
This article is part of Lendmire’s super jumbo DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Sell Part of a Super Jumbo DSCR Portfolio Early? · Super Jumbo DSCR vs Private Bank for a Trust-Held Pool · How to Manage Reserves on a Super Jumbo DSCR Loan Held in LLCs
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
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.