Anything is possible, the question is whether it's legal, and maybe whether IRS even knows or cares. I see what you mean, the instructions are ambiguous.  And I'm not going to wade through the Code unless someone pays me to do it.  But to play devil's IRS advocate here, why should it be?  The interest to carry the rental property is deducted on Schedule E.  The investment interest was paid to carry other investments, not those.