Something was brought to my attention in a recent conference that I might have misunderstood.

A loan was taken our on a rental property, rental was sold but loan was not paid off. Loan combined with another loan on another property (loan for 2nd property was increased). I considered the allocated interest expenses from the loan balance from the first property to be non-deductible personal interest expense since the TP choose to not pay off the loan. However, the loan belonged the property sold and the interest might still be considered mortgage interest on that property (to be taken as the only expense for that property until paid off).

What do you think? Even if it is still legitimate mortgage interest I surely hesitate to file a Sch. E for years just showing mortgage interest.