If you bought the second house BEFORE the loan, how can you argue that "the loan proceeds are used for ... business ... or investment activities"?
https://www.irs.gov/publications/p535
Allocation of Interest
The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds.
Allocate your interest expense to the following categories.
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Nonpassive trade or business activity interest.
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Passive trade or business activity interest.
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Investment interest.
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Portfolio interest.
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Personal interest.
In general, you allocate interest on a loan the same way you allocate the loan proceeds. You allocate loan proceeds by tracing disbursements to specific uses.