California home mortgage interest deduction appears to be maxing out at $1.1M and not $1M as I was expecting. Any ideas why this might be? Federal is maxing OK at 750K.

[david-kelly-daka]

I found that the entire interest of a loan of $1.09 is being deducted on 540CA. To see where it maxes out I adjusted the principal balance and it seems to max out at around $1.1 Million. Has anyone else seen this?

[TaxGuyBill]

I don't know anything about the California rules, but Federal USED to be $1.1M.  It was the $1,000,000 mortgage, PLUS the $100,000 personal interest (which could be applied for the mortgage limit).

Does California comply to those rules (the 'old' Federal rules)?

[david-kelly-daka]

Thanks Bill. That may be the case since I am reading that California does not conform to the new Fed rules.This is what I see on the CA FTB web page:

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 does not conform. If your deduction was limited under federal law, enter an adjustment on line 8, column C for the amount over the federal limit.

Federal law suspended the deduction on up to $100,000 ($50,000 for married filing separately) for interest on home equity indebtedness, unless the loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. California does not conform. If your deduction was limited under the federal law, enter an adjustment on line 8, column C for the amount over the federal limit.

I am still a little confused.

[TaxGuyBill]

Based on those two statements, and assuming that California DOES follow the IRS ruling that the $100,000 can be added to the $1,000,000, then the program is doing it correctly by using $1,100,000 (assuming you are not ALSO deducting personal interest based on the $100,000 rule).

[david-kelly-daka]

Thanks Bill!