California mortgage interest uses the federal $750,000 limit instead of California's $1,000,000 + $100,000 #10216

Title: California mortgage interest uses the federal $750,000 limit instead of California's $1,000,000 + $100,000

Problem

ca_itemized_deductions_pre_limitation takes mortgage interest from the federal interest_deduction, so it inherits the TCJA limit in 26 U.S.C. 163(h)(3)(F): $750,000 of acquisition debt ($375,000 MFS), and no home equity debt. California does not conform. It keeps the pre-TCJA limits: $1,000,000 of home acquisition debt plus $100,000 of home equity debt ($500,000 / $50,000 MFS). Under 2017 Pub. 936, acquisition debt over $1,000,000 can count as home equity debt up to that limit.

So any CA itemizer with mortgage debt above $750,000 is under-deducted. Above $1,100,000 the California share of interest is 1,100,000 / balance, against 750,000 / balance federally.

Reproduction (main, 2.42.0)

Synthetic case: 2025, single, CA, $500,000 wages, $60,000 of mortgage interest, one loan originated in 2020, nothing else itemized.

Sources

• R&TC 17225(b), added by SB 711 (2025), continues nonconformity to IRC 163(h)(3)(F). See the Senate Revenue & Taxation conformity chart, PDF p. 14. Before 2025, California's IRC conformity date (R&TC 17024.5) predated the TCJA.
• 2025 Schedule CA (540) instructions, Part II line 8: "Federal law limited the mortgage interest deduction acquisition debt maximum from $1,000,000 ($500,000 for married filing separately) to $750,000 ($375,000 for married filing separately). California law does not conform. … Federal law suspended the deduction on up to $100,000 ($50,000 for married filing separately) for interest on home equity indebtedness … California law does not conform."
• 2017 IRS Publication 936, PDF pp. 9–11: "Debt over this limit may qualify as home equity debt", and the Table 1 worksheet.

Proposed fix

The same approach as the Hawaii change in #9950:

• Add CA home_acquisition_debt_limit and home_equity_debt_limit parameters.
• Add a ca_mortgage_interest_deduction variable that runs 2017 Pub. 936 Table 1 on the existing balance and origination-year inputs. Grandfathered pre-October-14-1987 debt stays unlimited, as in the federal helper.
• Use it in ca_itemized_deductions_pre_limitation in place of the federal deductible_mortgage_interest.

Not modelled: the fair-market-value cap on home equity debt (no FMV input), and home equity debt not used to buy or improve the home (no separate input). I have a branch with YAML tests ready, and will open the PR if this approach works for you.