Pay off property or invest in new one.

[Zigmunt Smigaj]

I have two investment properties, cash on hand to pay one off, and combined equity of about 150k between the two. I just recently heard about HELOCs and refinancing a paid off home to purchase another. On a recent podcast it was explained that the FEDs can’t tax a loan and the rental income to pay pay down the financing is subject to lower taxes.  This strategy was an option if somebody lost a job and needed to live off this loan.

So question is would it make more sense to pay off a property off for the advantages described above (greater leverage) or simply roll my liquid cash into a 3rd property?