I agree that the tracing rules can be used here.
- Be careful of the refinancing rules related to your qualified residence
- Take a look at Chief Counsel Advice 201201017 (CCA 201201017). I believe this supports the ability to do this. However, keep in mind that the CCA is applicable only to the taxpayer (IRS agent technically) in the advice memo, but provides an indication of the IRS position on this matter.
- Pub 936 has changed since the CCA was issued, but the rules are discussed on pages 13 and 14 of the 2018 publication.
- Just to provide some clarification on bullet #2, when an IRS exam is going on and either the agent or their supervisor have a question on a particular legal matter of the case, they refer the question to the appropriate Chief Counsel office for advice. Chief Counsel Advice (CCA) are legal advisories written by the Chief Counsel's National Office to advise IRS personnel at all stages of case development. So technically, the advice is provided to the IRS field office, but related to a particular taxpayer and their specific facts.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
