@jeffmcpa2010  Given the rules about acquisition versus equity debt on the Federal side, do you agree with only 50% of the total interest being allowable--  125+25 = 150k of the 300k loan?     In other words since they paid off dad's acquisition loan, can they treat the 125k as their acquisition debt and add on the 25k in improvements? 

P.S.  has anyone ever heard of someone getting audited and asked to prove the acq versus equity? I have had some new clients over the years, and it seems like they have been taking 100% of the interest even when some of their loan is clearly tied to equity debt... 🤔