Can a debt free property be refinanced and use the proceeds to pay off acquisition debt on 2 other properties (all owned by the same person) and deduct the interest?

[jdpny]

I was trying to find information on the following situation under the new tax laws:

 Taxpayer has 3 properties as follows: 

Property A: personal residence                          $250k mortgage (acquisition indebtedness) 

Property B: rental property                                 $500k mortgage (acquisition indebtedness) 

Property C: Rental property                                 no mortgage 

If he refinances property C for $750k and uses the proceeds to pay off the mortgages on properties A & B will he be able to deduct the mortgage interest now on property C  since on property C it does not represent acquisition indebtedness for property C?

[TaxGuyBill · Accepted solution]

If a $750,000 loan is taken on Property C, then Property C can't take any deduction.  That loan did not do anything for Property C.

However, Property B can take the interest on the portion for the $500,000.  It is essentially just refinancing the loan.

Property A can't take any deduction.  Although it is refinancing Acquisition Indebtedness, another requirement for the personal interest deduction on Schedule A is that the loan must be against that personal residence. 

[jdpny]

Thank you the follow up. That confirms the research we've been doing.