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by a qualified residence on October 13, 1987, and at all times
thereafter before the interest is paid or accrued. See sec.
163(h)(3)(D)(iii)(I). Pre-October 13, 1987, indebtedness also
includes debt that is incurred after October 13, 1987, and is
used to refinance the pre-October 13, 1987, debt. See sec.
163(h)(3)(D)(iii)(II). Pre-October 13, 1987, indebtedness is
treated as acquisition indebtedness, but it is not subject to the
$1 million limitation. See sec. 163(h)(3)(D)(i). Also, a
taxpayer is not limited in how he uses the funds from a pre-
October 13, 1987 debt, while he is limited in the use of the
funds with acquisition and home equity indebtedness.
A qualified residence is either a taxpayer’s primary
residence or second residence. See sec. 163(h)(4)(A)(i); sec.
1.163-10T(p)(3), Temporary Income Tax Regs., 52 Fed. Reg. 48410
(Dec. 22, 1987).
Investment interest is any interest allowable as a deduction
which is paid or accrued on indebtedness properly allocable to
property held for investment. See sec. 163(d)(3)(A). Investment
interest does not include QRI. See sec. 163(d)(3)(B). A
taxpayer may deduct investment interest up to the amount of net
investment income. See sec. 163(d)(1). QRI is not subject to
the investment interest limitation of section 163(d)(3)(B). See
sec. 1.163-10T(b), Temporary Income Tax Regs., 52 Fed. Reg. 48410
(Dec. 22, 1987).
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