@Mac1287
For residential mortgages, you assume the equity debt is paid down first. That is preferred because it increases the percentage of interest eligible for the schedule A deduction. I don't know if this treatment is required--if there was a reason to "pay off" the acquisition debt portion first (to change how interest is allocated) then I suggest a professional consultation, to determine if you can use a different method.
As long as you don't have any new borrowing during the year, you take the average of the first and last month total balance (300+290)/2=295 and the average of the first and last month acquisition debt (200+200)/2=200 and then get the percentage 200/295=0.678 (take it to the third decimal place). There is a worksheet and illustration in publication 936 that applies to residential mortgages but I believe the formula and principle would be the same when assigning interest to the rental property. Just ignore the $1 million and $750,000 limitations because they don't apply to business property loans.
https://www.irs.gov/forms-pubs/about-publication-936
If you use the equity debt to buy new property C or refurbish property A, remember that the interest is only qualified rental interest after you make the purchase or remodel, not for the entire year. So it might be the case that 32.2% of the interest is equity interest, but if you don't buy property C until June, then only 6/12th of the equity interest can be applied as an expense to property C.
