I figured this out. This is a bug in TurboTax (at least on the desktop version) as it does not transfer the ISO adjustment to California tax return (It should have transferred Form 6251 line 2k to California Schedule P (540), line 9). The workaround is to switch to the Form mode and enter this manually on California Schedule P (540), line 9
You also need to keep track of your California AMT capital loss carryover for the next year. Again TurboTax does this for the federal return but not for California.
