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

changelog.d/hi-mortgage-interest-cap.fixed.md

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+Apply Hawaii's pre-TCJA mortgage debt limits ($1 million acquisition plus $100,000 home equity debt), round the qualified-debt ratio to three decimal places, and preserve supplied deductible mortgage interest when gross interest is unavailable. Exclude dependents' canonical mortgage-interest inputs from the shared federal aggregate nationwide, changing federal deductions and state deductions that use federal mortgage-interest or itemized-deduction amounts. Use deprecated structured interest only when no tax-unit member reports canonical interest. Preserve filers' own legacy gross interest and supplied deductible interest in Hawaii even when dependents report canonical interest, while excluding dependents' legacy gross interest and supplied deductible interest from Hawaii's mortgage deduction.

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_acquisition_debt_limit.yaml

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+description: Hawaii limits the home acquisition debt on which mortgage interest is deductible to this amount, based on filing status.
+SINGLE:
+  2018-01-01: 1_000_000
+JOINT:
+  2018-01-01: 1_000_000
+HEAD_OF_HOUSEHOLD:
+  2018-01-01: 1_000_000
+SEPARATE:
+  2018-01-01: 500_000
+SURVIVING_SPOUSE:
+  2018-01-01: 1_000_000
+metadata:
+  propagate_metadata_to_children: true
+  breakdown:
+    - filing_status
+  unit: currency-USD
+  period: year
+  label: Hawaii home acquisition debt limit
+  reference:
+    # Hawaii makes the TCJA limit in IRC 163(h)(3)(F) inoperative, so the
+    # pre-TCJA limit in IRC 163(h)(3)(B)(ii) applies.
+    - title: Hawaii Revised Statutes 235-2.4(j)(3)
+      href: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0002_0004.htm
+    - title: Act 35, SLH 2026 (HB2329 CD1), HRS 235-2.4(i)(3)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=20
+    - title: 2018 Hawaii N-11 Instructions, Line 21c
+      href: https://files.hawaii.gov/tax/forms/2018/n11ins.pdf#page=19
+    - title: 2025 Hawaii N-11 Instructions, Line 21c
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17
+    - title: 2017 IRS Publication 936, Home acquisition debt limit
+      href: https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=9

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_equity_debt_limit.yaml

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+description: Hawaii limits the home equity debt on which mortgage interest is deductible to this amount, based on filing status.
+SINGLE:
+  2018-01-01: 100_000
+JOINT:
+  2018-01-01: 100_000
+HEAD_OF_HOUSEHOLD:
+  2018-01-01: 100_000
+SEPARATE:
+  2018-01-01: 50_000
+SURVIVING_SPOUSE:
+  2018-01-01: 100_000
+metadata:
+  propagate_metadata_to_children: true
+  breakdown:
+    - filing_status
+  unit: currency-USD
+  period: year
+  label: Hawaii home equity debt limit
+  reference:
+    # Hawaii makes the TCJA suspension of home equity interest in IRC
+    # 163(h)(3)(F) inoperative, so the limit in IRC 163(h)(3)(C)(ii) applies.
+    - title: Hawaii Revised Statutes 235-2.4(j)(3)
+      href: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0002_0004.htm
+    - title: Act 35, SLH 2026 (HB2329 CD1), HRS 235-2.4(i)(3)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=20
+    - title: 2018 Hawaii N-11 Instructions, Line 21c
+      href: https://files.hawaii.gov/tax/forms/2018/n11ins.pdf#page=19
+    - title: 2025 Hawaii N-11 Instructions, Line 21c
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17
+    - title: 2017 IRS Publication 936, Home equity debt limit
+      href: https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=10

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/deductible_mortgage_interest.yaml

@@ -144,3 +144,156 @@
   output:
     # Post-TCJA cap: 45,000 x 750,000 / 900,000 = 37,500
     deductible_mortgage_interest_tax_unit: 37_500
+
+# Publication 936 (2017), pages 2 and 8: only the taxpayer's paid share
+# belongs on the return, including a spouse's share on a joint return.
+# https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=2
+- name: Dependent-only canonical interest cannot create a federal filer deduction
+  period: 2024
+  input:
+    people:
+      head:
+        age: 45
+        is_tax_unit_head: true
+      dependent:
+        age: 20
+        is_tax_unit_dependent: true
+        home_mortgage_interest: 12_000
+    tax_units:
+      tax_unit:
+        members: [head, dependent]
+        filing_status: SINGLE
+    households:
+      household:
+        members: [head, dependent]
+        state_code: CA
+  output:
+    home_mortgage_interest_tax_unit: 0
+    deductible_mortgage_interest_tax_unit: 0
+    non_deductible_mortgage_interest_tax_unit: 0
+    deductible_mortgage_interest: [0, 0]
+    interest_deduction: 0
+
+- name: Dataset-like structured totals cannot restore dependent-only canonical interest
+  period: 2024
+  input:
+    people:
+      head:
+        age: 45
+        is_tax_unit_head: true
+      dependent:
+        age: 20
+        is_tax_unit_dependent: true
+        home_mortgage_interest: 12_000
+    tax_units:
+      tax_unit:
+        members: [head, dependent]
+        filing_status: SINGLE
+        # Dataset exports duplicate canonical interest in deprecated inputs.
+        first_home_mortgage_interest: 12_000
+    households:
+      household:
+        members: [head, dependent]
+        state_code: CA
+  output:
+    home_mortgage_interest_tax_unit: 0
+    deductible_mortgage_interest_tax_unit: 0
+    non_deductible_mortgage_interest_tax_unit: 0
+    deductible_mortgage_interest: [0, 0]
+    interest_deduction: 0
+
+- name: Federal mortgage interest includes the single filer's payment only
+  period: 2024
+  input:
+    people:
+      head:
+        age: 45
+        is_tax_unit_head: true
+        home_mortgage_interest: 10_000
+      dependent:
+        age: 20
+        is_tax_unit_dependent: true
+        home_mortgage_interest: 12_000
+    tax_units:
+      tax_unit:
+        members: [head, dependent]
+        filing_status: SINGLE
+    households:
+      household:
+        members: [head, dependent]
+        state_code: CA
+  output:
+    home_mortgage_interest_tax_unit: 10_000
+    deductible_mortgage_interest_tax_unit: 10_000
+    non_deductible_mortgage_interest_tax_unit: 0
+    deductible_mortgage_interest: [10_000, 0]
+    interest_deduction: 10_000
+
+- name: Capped federal interest allocates both spouses' payments without dependent interest
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 45
+        is_tax_unit_head: true
+        home_mortgage_interest: 30_000
+      spouse:
+        age: 44
+        is_tax_unit_spouse: true
+        home_mortgage_interest: 15_000
+      dependent:
+        age: 20
+        is_tax_unit_dependent: true
+        home_mortgage_interest: 12_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse, dependent]
+        filing_status: JOINT
+        first_home_mortgage_balance: 900_000
+        first_home_mortgage_origination_year: 2023
+    households:
+      household:
+        members: [head, spouse, dependent]
+        state_code: CA
+  output:
+    # $45,000 * $750,000 / $900,000 = $37,500, split 2:1.
+    home_mortgage_interest_tax_unit: 45_000
+    deductible_mortgage_interest_tax_unit: 37_500
+    non_deductible_mortgage_interest_tax_unit: 7_500
+    deductible_mortgage_interest: [25_000, 12_500, 0]
+    non_deductible_mortgage_interest: [5_000, 2_500, 0]
+    interest_deduction: 37_500
+
+- name: No member canonical interest preserves the federal structured-interest fallback
+  period: 2024
+  input:
+    people:
+      head:
+        age: 45
+        is_tax_unit_head: true
+      spouse:
+        age: 44
+        is_tax_unit_spouse: true
+      dependent:
+        age: 20
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, dependent]
+        filing_status: JOINT
+        first_home_mortgage_interest: 45_000
+        first_home_mortgage_balance: 900_000
+        first_home_mortgage_origination_year: 2023
+    households:
+      household:
+        members: [head, spouse, dependent]
+        state_code: CA
+  output:
+    # With no member canonical payments, each spouse gets half the deduction.
+    home_mortgage_interest_tax_unit: 45_000
+    deductible_mortgage_interest_tax_unit: 37_500
+    non_deductible_mortgage_interest_tax_unit: 7_500
+    deductible_mortgage_interest: [18_750, 18_750, 0]
+    non_deductible_mortgage_interest: [3_750, 3_750, 0]
+    interest_deduction: 37_500

policyengine_us/tests/policy/baseline/gov/states/hi/tax/income/deductions/itemized/hi_interest_deduction.yaml

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+- name: Case 1, a $1.5 million mortgage deducts interest on $1.1 million of debt.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 45
+        home_mortgage_interest: 90_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+        first_home_mortgage_balance: 1_500_000
+        first_home_mortgage_origination_year: 2023
+    households:
+      household:
+        members: [person1]
+        state_code: HI
+  output:
+    # Table 1, line 11: round($1,100,000 / $1,500,000, 3) * $90,000.
+    hi_interest_deduction: 65_970
+
+- name: Case 2, mortgage interest is capped and the bundled investment-interest input is preserved.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 45
+        home_mortgage_interest: 65_000
+        investment_interest_expense: 5_000
+        taxable_interest_income: 2_000
+      person2:
+        age: 45
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+        filing_status: JOINT
+        first_home_mortgage_balance: 800_000
+        first_home_mortgage_origination_year: 2017
+        second_home_mortgage_balance: 500_000
+        second_home_mortgage_origination_year: 2020
+    households:
+      household:
+        members: [person1, person2]
+        state_code: HI
+  output:
+    # Mortgage: round($1,100,000 / $1,300,000, 3) * $65,000 = $54,990.
+    hi_mortgage_interest_deduction: 54_990
+    # Preserve the bundled $5,000 input pending the dataset leaf-input split.
+    hi_interest_deduction: 59_990
+
+- name: Case 3, mortgage interest within the debt limit and the bundled input are deductible.
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 45
+        home_mortgage_interest: 20_000
+        investment_interest_expense: 1_000
+        qualified_dividend_income: 4_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+        first_home_mortgage_balance: 400_000
+        first_home_mortgage_origination_year: 2021
+    households:
+      household:
+        members: [person1]
+        state_code: HI
+  output:
+    hi_interest_deduction: 21_000
+
+- name: Case 4, supplied deductible mortgage interest with a balance is kept alongside the bundled input.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person1:
+        age: 45
+        deductible_mortgage_interest: 45_000
+        investment_interest_expense: 1_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+        first_home_mortgage_balance: 1_500_000
+        first_home_mortgage_origination_year: 2023
+    households:
+      household:
+        members: [person1]
+        state_code: HI
+  output:
+    hi_mortgage_interest_deduction: 45_000
+    hi_interest_deduction: 46_000