I'm not sure any of this is applicable.
Even though the mortgage was secured by the taxpayers personal home, NONE of it is deductible on schedule A. Since the home was paid off, any new loan debt is equity debt, and not acquisition debt, and equity debt is no longer deductible on schedule A.
As to the commercial property, suppose the taxpayer had an old 10% mortgage and found it desirable to refinance with an unsecured personal loan at 6%, or even a credit card with a promotional 1.9% APR. Normally, that would be allowable as a business expense as long as the interest was directly traceable to the commercial property. The loan does not have to be secured by the commercial property. But there has to be a direct link between the interest and the property. Once you start paying for other things from the personal loan or credit card, and muddy the waters, the business interest deduction is in jeopardy. (We have also answered many times in the past that if a taxpayer borrows on commercial property A to buy commercial property B, the loan interest is an expense on property B, not property A, and the tracing rules must be followed.)
I don't see why that principle would not apply in this case. The taxpayer borrowed money to pay off his commercial mortgage, and the new money is in effect a loan that is paying for his commercial property. Does it matter if it is a credit card, a personal loan, or a mortgage on a different piece of property?
