@don173 wrote:
....Tracing would be easy in this case. So, just to clarify, I could use the interest on Schedule E?
I answered in the other thread you started and I believe you can do so. I now agree with @Opus 17.
As mentioned by @Anonymous in the other thread, you can elect to treat the debt as not being secured by your primary residence and, since it is being used for a business purpose (i.e., your rental), you should be able to deduct the interest on Schedule E.
Also, I was not aware that your primary residence had no outstanding balance (you owned it free and clear) so you would not be able to deduct the interest as qualified debt on your primary home on Schedule A, regardless, unless you used the proceeds to improve your home.
