I see, I did not understand your distinction between home acquisition and home equity. So I agree zero home equity indebteness.
I do not agree with your last paragraph, at least how I read the IRS rules. Your post has made me revisit this topic. See IRS publication 936, under mixed use mortgages.
" If the average balance consists of more than one category of debt (grandfathered debt, home acquisition debt, and home equity debt),
Figure the balance of that category of debt for each month. This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order.
First, any home equity debt not used to buy, build, or substantially improve the home.
Next, any grandfathered debt.
Finally, any home acquisition debt.
Add together the monthly balances figured for b and c in (1)."
Now here I equated the rental home debt portion as home equity debt. That may be incorrect as the rental debt portion is business use, not home equity debt.
When i look later on in pub 936, it says:
"If you did use all or part of any mortgage proceeds for business, investment, or other deductible activities, the part of the interest on line 16 that is allocable to those activities can be deducted as business, investment, or other deductible expense, subject to any limits that apply. ..."
What this means is that you deduct the interest amount allocated to business use, which is different that what I said earlier. Either way, it doesnt agree with what you said .
Clear as mud.
