sorry, but I don't see how the document you reference supports the case
1) can you please provide the specific paragraph and sentence of publication 936 that supports tracing when secured debt on residential real estate is involved?
2) Treas. Reg. §1.163-8T(a)(3): what specifically in this document supports secured debt on residential real estate? There is a specific reference to (6) Special rules—(i) Qualified residence debt. [Reserved] , but no further reference is provided. It does suggest that there are other rules to follow outside of this treasury regulation when dealing with qualified residential debt (of which a HELOC is one of them).
Lastly, if tracing rules do apply, then why does the IRS provide the following example which would NOT support tracing.
Example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.
https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law
if it very clear from this link that the secured debt must be used to buy, build or substantially improve the taxpayer’s home that secures the loan in order for the interest to be deductible.
that may be the 'special rules' for secured debt on qualified residential real estate - you CAN NOT trace the debt for any other use
On that basis, what is the evidence that proceeds on secured debt on a qualified residence can be used to invest in a business / LLC , another residential property or stock trading activity when the IRS specifically states the "the secured debt must be used to buy, build or substantially improve the taxpayer’s home that secures the loan"
what am I missing is evidence that logically supports that interest from a HELOC can be considered deductible if the proceeds are invested into a LLC. the references provided are very broad and I do not see how they are 'on point'
thx
