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You and your wife borrow jointly. Your partner will still own the property so she wouldn't want to pay off her loan completely, but only the half relating to the half she is selling. Paul and I have done this for clients previously.

This is never acceptable. The deductibility of interest will depend on the purpose and use of the funds borrowed. If used for personal items then the interest on this increase will never be deduction. security for the loan doesn't matter.

If it is one big loan then any repayment will come off all portions of the loan. It is like mixing orange juice and milk. If you remove 10mil of liquid it would be partially milk and partially orange juice. If you want to pay one portion off independantly you would need to separate the orange...

You could possibly borrow to pay all expenses such as rates etc. The money you would have used can be used to pay down non deductible debt or invested in the spouse's name so less tax paid on the income.

I would say money for property C not deductible based on info at hand.

You can only claim the interest on money borrowed for investment purposes. The $200k loan related to a property purchase but you paid it down to $120k. So only $120k of this loan relates to the property. $80,000 relates to a new property which you live in. So on the face of it only $120k...