We just received a "Notice of Proposed Assessment" from the state of California for our 2018 taxes. In that letter, they stated "You may not add adjustments to your California Schedule CA for itemized deductions because you have already included them on your Federal Schedule A."
Here is the situation:
Back in tax year 2018, we received two 1098 forms for home mortgage interest, one for a line of credit (secured by a 2nd home) and one for our primary residence. I most likely entered both directly into TT in the normal form entry process.
On our Fed Sch A, TT put the smaller of the two (line of credit interest) into line 8a "Home mortgage interest" but did not include the larger amount (~17k). I now have no idea why TT did this and I didn't catch it nor question it at the time. In any case, we only ended up with about 15k total on our Sch A so we filed using the standard deduction of 24k (married filing jointly).
Then on to the state filing, specifically Schedule CA (adjustments), under Part II, TT put the smaller amount into column A ("Federal amounts") and then the 17k into column C ("Additions"). This 17k therefore was deducted from our overall income, but only for state taxes.
Now 4 years later, we received this Notice of Proposed Assessment and I'm trying to decide what to do. It seems like their statement of "you can't deduct this again because you already did on your Fed taxes" is incorrect, but we're not sure. Any help or knowledge about this process would be greatly appreciated!
