---

@cinmon428 wrote:

Here ya go, pal. Here's the proof that interest follows principal, and, added to what I said, means none of the acq interest is deductible until you pay off the credit card (home equity) interest:

 

Reg. 1.163-7(e)(4)(3)--MANNER OF ALLOCATION: In general interest expense on a debt is allocated IN THE SAME MANNER AS THE DEBT TO WHICH SUCH INTEREST EXPENSE RELATES IS ALLOCATED. Debt is allocated by tracing disbursements of the debt proceeds to specific expenditures....

Better amend your clients that refi'ed their mortgages and got cash out for things like cars, credit card payments, and closing costs for their refi. 

---

Sleep on it and re-read the Regulation you just posted.  You just proved my point.

That Reg says the interest is allocated as the debt is allocated.  The debt is allocated by the tracing rules.

If the tracing rules say 80% is Acquisition debt and 20% as personal debt, the Regulation you just posted say the interest is allocated "in the same manner".