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.
