Jackie Meridee borrows $400,000 and acquires an income producing property for $400,000. She subsequently sells the property for $250,000 and, without repaying the funds borrowed to acquire the first property, uses the proceeds to acquire two other properties. The cost of property A is $100,000, while the cost of property B is $150,000. How will the $400,000 of borrowing be linked to the two new properties?

Question 6 options:

Ms. Meridee has flexibility with respect to the allocation, as long as it adds up to $400,000

No linking is required as the loan interest would never be deductible in this situation.

Ms. Meridee must use a pro rata allocation of the borrowed money based on the proportional cost of the two new properties.

Ms. Meridee has flexibility with respect to the allocation, as long as it adds up to $250,000