I followed the instructions. The error persists. Please note that the error isn't in the Federal forms, since the deduction limit is calculated by the user outside TT and entered manually. Rather, the error is in the Ded Home Mort worksheet that feeds Schedule CA in the California return. Rather than have the user calculate the mortgage interest deduction limit, the worksheet draws data directly from the Federal 1098 worksheets and attempts to calculate the deduction limit. However, variously the relevant data don't transfer completely (for example, the "months" and "ending balance" entries necessary to calculate the prorated average, and so the worksheet is still adding the two total mortgage balances together in Part 2 line 2, using that as the denominator to calculate the limit, and so reducing the deduction (in my case) to about half what it should be.
The worksheet should transfer the starting and payoff balances for the original loan, and the starting and end-of-year balances for the refi, plus the date of the refi. It should then calculate the prorated average balance by multiplying each loan's average balance (start minus end divided by 2) by the fraction of the year that loan was active, and then adding those to parts together.
The simplest fix for the moment is to override the amount in Part 2 line 2 with a correctly calculated prorated average; then the rest of the California calculation proceeds properly. I very much hope that TT will fix the worksheet, or alternatively do the same as the Federal form and simply have the user calculate the limit.
