That is incorrect and the linked IRS tax code doesn't even cover this specific example. It is a security to the bank since you're selling what amounts to an opt

That is incorrect and the linked IRS tax code doesn't even cover this specific example. It is a security to the bank since you're selling what amounts to an options contract to them. The cash they loan you is still considered a cash loan, and must follow the minimum AFS rate. The "options contract" for appreciation rights is the collateral for the loan (secured loan), the loan is still a loan. It's effectively the same as a home equity loan.