Ida Ross has decided to purchase a new home in a retirement community for $400,000. She has $50,000 in cash for the down payment but needs to borrow the remaining $350,000 to finance the purchase. Her financial advisor, Marc, suggests that rather than seeking a conventional mortgage, she should borrow the funds from Sate Bank using her portfolio of appreciated securities as collateral. Selling the securities to generate $350,000 in cash would lead to a substantial tax on the capital gain recognized. Therefore, a better strategy would be to borrow against her securities and then claim a deduction for the interest paid on the loan. How do you react to the financial advisers strategy?

See Temp.Reg. 1.163-8T(c) for research aid.