Apply California's pre-TCJA mortgage debt limits to the interest deduction

[curielmc]

Title: Apply California's pre-TCJA mortgage debt limits to the interest deduction

Fixes #

What and why

California does not apply IRC 163(h)(3)(F) (R&TC 17225(b); 2025 Schedule CA (540) instructions, Part II line 8). It keeps the $1,000,000 home acquisition and $100,000 home equity debt limits ($500,000 / $50,000 MFS), however recent the debt. PolicyEngine took California's mortgage interest from the federal interest_deduction, so a CA itemizer with more than $750,000 of debt was under-deducted.

• New parameters gov.states.ca.tax.income.deductions.itemized.interest.home_acquisition_debt_limit and .home_equity_debt_limit, by filing status, from 2018.
• New ca_mortgage_interest_deduction follows 2017 Pub. 936 Table 1:
  • Grandfathered debt (line 1, reusing the federal _debt_by_vintage helper) has no dollar limit but reduces the acquisition limit (lines 3–6).
  • Debt over the acquisition limit counts as home equity debt up to its limit (line 7; Pub. 936 (2017) p. 9).
  • Line 11 rounds the ratio to three places, as in Apply Hawaii's pre-TCJA mortgage debt limits to the interest deduction #9950.
  • It applies the ratio to gross interest (home_mortgage_interest_tax_unit). When no gross interest is reported, it keeps a directly supplied federal deductible_mortgage_interest.
• ca_itemized_deductions_pre_limitation swaps the federal deductible_mortgage_interest for it. This mirrors how it already swaps investment interest for FTB 3526.

The California amount is never below the federal amount for the same debt. Both limits use the same vintages, and California's limit is at least the federal one plus the home equity allowance. Only California itemized deductions change; nothing federal does.

Not modelled, as in #9950: the fair-market-value limit on home equity debt, and home equity debt not used to buy, build or improve the home. Neither has an input.

Test plan

• ca_mortgage_interest_deduction.yaml, 11 cases. Expected values are worked by hand from 2017 Pub. 936 Table 1 and the federal limits in 163(h)(3)(F); none is copied from model output. The cases cover:
  • below $750,000; between $750,000 and $1,000,000; between $1,000,000 and $1,100,000; above $1,100,000, both post- and pre-TCJA;
  • MFS; joint with two loans; grandfathered 1986 debt; no balance reported; a supplied federal deduction only;
  • Schedule CA integration through ca_itemized_deductions_pre_limitation.
• policyengine_us/tests/policy/baseline/gov/states/ca via test_batched.py --mode per-subdir --workers 1: 876 passed in 8 batches.
• Other suites with CA households and mortgage inputs (partners/analytics_coverage/signatures/federal.yaml, spm_unit_spm_threshold_housing_portion.yaml, policybench_ira.yaml): 29 passed, partner expectations unchanged.
• policyengine_us/tests/code_health: 288 passed.
• make format
• Changelog fragment in changelog.d/

axiom: needed