At least part of the interest may be deductible depending on how you used the proceeds.  According to IRS Publication 936, mortgage interest is deductible on loan amounts used to buy, build, or substantially improve your main or second home.  Your main or second home must be used to secure the loan (collateral). 

The amount of the loan that you used to pay off the mortgage on the second home could be deductible if the home is a rental property or investment property for example.   

The interest on that part of the proceeds is deductible on the applicable schedules for those property types. 

[edited 2/25/2021 3:21pm EST]

Thanks so much for your reply! Great insights!

Now to make the situation even more interesting, what will happen in the following two situations:

1) I rent out my old home for the whole year, now that home is no longer a second home I think. But can I deduct the mortgage interest against the rental income as part of the expense?

2) I sell my old home. Now I still have a mortgage secured by my main home , but no longer have a second home. After the sale, is there a way I can still deduct the mortgage interest?

Thanks so much!!

1. Yes, you can deduct mortgage interest on the property against rental income.

2. No, only the interest related to your main and second home is deductible. Without a second home, only the interest related to your main home will be deductible.

Thanks for the reply. I have been studying IRS 936 carefully. I started to believe in my case the mortgage interest is not deductible. The IRS publication says:

Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). It must also be secured by THAT home.

DMarkM1 just argued that I used a mortgage secured by my main home to buy a second home, but that case does not seem to qualify as home acquisition debt, right?

Thanks!

The IRS considers home acquisition debt to be any mortgage obtained after Oct. 13, 1987 that was used to buy, build, or substantially improve a main or secondary home. The mortgage must also be secured by that home as collateral. With respect to your original explanation, you are correct in that your situation is not a home-acquisition debt, HOWEVER, the new mortgage you took out to pay off the other house sounds more like a HELOC to me and the interest from that is most definitely deductible. 

Hi! Yeah, I agree it is like a HELOC but HELOC interest is not deductible now unless it is used to improve the collateral house I think?

Correct, HELOC interest is not deductible now unless it is used to improve the collateral house.

The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

Here is a link to the IRS, Interest on home Equity Loans

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