If the TP borrowed on his first home to build the second home I know you cannot take the interest on the new debt as ‘home mortgage interest’ because the debt is not secured by the second home. But, I just don’t see where it clearly says, ‘you cannot take the interest anywhere on the return (investment interest) and you cannot take it to basis. It is lost, over and out’. Aren’t there still tracing rules involved that could give credence to, at a minimum, taking the lost home mortgage interest to basis? And how about the lost property tax. Can you elect to take the lost property tax to basis much like you would with a vacant lot? Real estate by its nature is investment in that usually the owner expects a return from appreciation. Can we not take any lost interest to investment interest? Can we not take any lost property tax to basis or lost interest to basis in that it is a cost incurred in owning the ‘investment’? Would the answer differ if we were only talking about the second home? My mind is in overdrive with this and I’m having a hard time accepting that the answers are no,no,and no and no. It’s all lost.