Whether only a primary or more than just the primary mortgage interest expense should be allowed as a deduction against income depends upon one's perspective of how much like a business our personal lives should be from a tax point of view. A business is allowed to deduct the interest expense from earnings because those interest expenses are costs to doing business. Why, when we calculate our own personal tax debt (based on income) aren't we allowed to deduct our costs to doing business. If I have to borrow money to buy a house, a vehicle, a second house, etc. - why can't I deduct all of those interest expenses?
The interest on my primary mortgage is deductible, but so is my capital gain on the asset I purchased - isn't this a double win? Yet on my second home purchase, where all of my gain will be taxable when I sell it, a big part of the cost of acquiring that asset (a loan) isn't deductible against my income?
I was originally going to argue that only the primary mortgage deduction should be allowed (and maybe not even that), but I seem to have talked myself out out it. What is the error to my logic?