Fix CA AMT: don't add back acquisition home mortgage interest (Schedule P Line 4)#8873
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Fix CA AMT: don't add back acquisition home mortgage interest (Schedule P Line 4)#8873PavelMakarchuk wants to merge 1 commit into
PavelMakarchuk wants to merge 1 commit into
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CA Schedule P (540) Part I Line 4 adds back only non-acquisition (home-equity) mortgage interest not used to buy, build, or improve the home, mirroring federal Form 6251 (IRC 56(b)(1)(C)/(e)). PolicyEngine's deductible_mortgage_interest is entirely acquisition interest and PE has no separate non-acquisition amount, so like the federal AMT there is no line 4 add-back. Removing mortgage_interest from the CA AMTI sources list eliminates a phantom CA AMT. Fixes #8658 Co-Authored-By: Claude Opus 4.8 <noreply@anthropic.com>
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Summary
California's AMT (
ca_amti_adjustments) added back the full home mortgage interest deduction via themortgage_interestentry in the AMTI sources list. Schedule P (540), Part I, Line 4 adds back only non-acquisition mortgage interest — "Certain interest on a home mortgage not used to buy, build, or improve your home." This mirrors federal Form 6251 line 2e (IRC §56(b)(1)(C)/(e)): acquisition mortgage interest is not added back for AMT.PolicyEngine's federal AMT already excludes acquisition interest — its add-back list (
itemized_deductions_add_back) is onlysalt_deductionandmisc_deduction, with no mortgage interest, becausedeductible_mortgage_interestrepresents entirely acquisition (debt-capped) interest and PE models no separate non-acquisition/home-equity amount. CA was internally inconsistent with the federal treatment it mirrors, creating a phantom CA AMT.The fix removes
mortgage_interestfrom the CA AMTI sources list so CA conforms to the federal AMT.Before / after
CA MFJ, $168,340.64 interest, $50,000 acquisition mortgage, TY2025:
ca_amti_adjustmentsca_amtca_income_taxLegal basis
Testing
Added an integration test to
ca_amt.yaml. All 18 CA AMT tests pass. Existingca_amti_adjustmentstests setmortgage_interest: 0, so they are unaffected.Originating TAXSIM comparison: PolicyEngine/policyengine-taxsim#973
Fixes #8658
🤖 Generated with Claude Code