Refinance Your Home to Pay Any Capital Gains Tax with Asset Depletion

Every investor eventually faces the same dilemma: a big tax bill and a portfolio they’d rather not touch. Maybe you realized a large gain on a stock position, or maybe crypto’s bull run treated you well. Either way, writing a check to the IRS feels like pouring gasoline on your investment momentum. What if you could pay that bill and keep your money compounding in the market?

That’s where a refinance using an asset depletion mortgage comes in.

Before we go deeper, let’s be clear: this article is not tax advice. Always consult with your CPA or financial advisor. What follows is a strategy—one used by high-net-worth individuals every day—to solve for liquidity without derailing long-term growth.

How Does Asset Depletion Work For Refinances?

Asset depletion is a mortgage qualification method that turns your portfolio into income. Instead of relying on W-2 paychecks, lenders calculate your qualifying income by dividing your liquid assets—stocks, bonds, retirement accounts, even crypto—over a set term (LendFriend uses a term 60 months). That monthly figure is treated just like salary.

Asset depletion calculations used for refinances are no different than when used for a purchase. It allows you to borrow against your home without having to prove traditional income. It’s particularly valuable for investors, retirees, or entrepreneurs who are asset-rich but prefer not to show income on paper.

Why Refinance Instead of Liquidate?

Three words: control, efficiency, and tax management.

1. Avoid capital gains taxes now. Selling investments to pay a $700,000 bill means triggering more taxes in the process. By refinancing instead, you borrow against your house and keep your portfolio intact.

2. Stay invested. If you believe your assets are poised for further appreciation, the last thing you want is to cash out early. Refinancing lets you ride the next wave while handling today’s obligations.

3. Liquidity on your terms. A refinance provides lump-sum cash, structured repayment, and predictable terms. It’s easier to plan around than a securities-backed line of credit that could be called in a downturn.

A Real-World Scenario

One of our clients purchased a $2.8 million home in 2024 with an initial loan of $1.5 million. Following a successful exit, they were facing a $300,000 tax bill. They had the liquidity to pay it, but selling down their portfolio would have created additional gains and disrupted their investment strategy.

Instead, we structured an asset depletion refinance. By borrowing $350,000–$450,000 against their primary residence, they kept their portfolio fully invested, maintained a healthy combined loan-to-value ratio, and satisfied their tax obligations. The rate wasn’t the focus—terms and structure were (but the rate isn't half bad either).

This is leverage at its best: keeping money compounding while still meeting financial obligations.

Key Benefits of Asset Depletion Refinancing

Flexibility. No W-2 income required. Your assets do the talking. This means even if your income isn’t traditional or is currently minimal, you can still qualify for substantial financing by showing the strength of your investment accounts. Retirees, entrepreneurs, and high-net-worth investors often find this the only way to access liquidity without disrupting their financial independence.

Efficiency. One refinance, one payment, liquidity without chaos. Instead of juggling multiple loans or margin lines that could be called at the wrong time, you consolidate access to cash into a single predictable payment. That simplicity is invaluable when planning around a tax deadline or other large financial obligation.

Tax efficiency. Loans are not taxable income. You borrow, you don’t trigger capital gains. This distinction is critical: refinancing lets you preserve compounding while deferring liquidation until you choose. The tax bill will still come due, but you gain control over when and how to cover it, often years later, after further growth.

Terms > Rate. For high-net-worth borrowers, the structure of the loan—how much you can access and when—often outweighs whether the interest rate is an eighth higher. The right terms can mean freeing up hundreds of thousands in liquidity without a forced sale, making structure far more important than small differences in pricing.

Can I Use Asset Depletion for a Closed-End Second Instead of a Refinance?

Yes. Closed-end seconds can work with asset depletion, but you’ll want to carefully evaluate your blended rate. In some cases, a closed-end second makes perfect sense—say your existing first mortgage has a fixed rate well below current market levels. Adding a second loan may give you the liquidity you need without disturbing that favorable first lien, especially if you have a rate that's a 5% or lower.

In the example above, however, it didn’t make sense to use a closed-ended second because today’s refinance rates were actually lower than the original primary mortgage rate from 2024. In that case, a full capital stack refinance delivered better overall terms and lower effective cost.

Risks and Considerations

This isn’t a silver bullet. There are real risks:

• Market volatility. Asset values fluctuate. A portfolio worth $5 million today could be worth $4.7 million next quarter. Lenders typically lock values at application, but timing matters.

• Loan-to-value caps. Most lenders will allow 75-80% cash-out maximum. Planning the right size loan is critical.

• Tax timing. Refinancing doesn’t erase the IRS bill—it simply allows you to manage when and how you pay it. Coordination with your CPA is essential.

How It Compares to Other Strategies

• Securities-backed lines of credit (SBLOCs). Quick access, but margin calls in a down market can wipe you out.

• Selling assets outright. Simple, but guarantees you’ll accelerate your tax burden—and in many ways defeats the purpose of trying to manage timing and stay invested.

Asset depletion refinancing often threads the needle: stable repayment, tax efficiency, and no forced liquidation.

Who Should Consider This Strategy?

• Retirees with large brokerage or retirement accounts but little current income.

• Executives with deferred compensation or stock grants.

• Crypto investors who don’t want to liquidate.

• Anyone facing a one-time liquidity crunch (like a big tax bill) who wants to stay invested.