Debt on property that is not debt-financed property (described under Exceptions to Debt-Financed Property in chapter 5) is not acquisition indebtedness. However, if an organization converts this property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness.

Example. Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Last year, the university rented the apartment building to the public for nonexempt purposes. The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public.

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