to be qualified residence interest (home acquisition debt) it must be secured by the residence. since this is not your situation it is not QRI/HAD. therefore the tracing rules of Temp Reg 163-8T are used to determine the deductibility of the interest. You took out a HELOC and assuming the proceeds were deposited into your investment account, the interest incurred during the time loan proceeds are in the investment account would be investment interest. When the loan proceeds are withdrawn, the interest on the amount withdrawn is reallocated based on the use of the funds. Since it seems that withdrawals were used to pay for your residence, the interest on those amounts is personal interest and therefore not deductible as either residential interest, investment interest or any other type of interest expense.
