1) yes, just override the 25k. there is no inconsistency. If you are ever audited by the IRS, you have the documentation to show how you deducted some interest on Sch A and the rest on Scd E.
2. No you don't have to. Taxing authories "love it" when you don't take deductions entited to you. While I am not really familiar with CA taxes, you may be better off following the CA rules. Here's why: on the federal return, you are likely a passive investor, so your losses are only deductible up to a point (the rest are deferred to a future year). If CA works similarly, then you would want to take the deduction as a personal deduction and not a real estate deduction so that you can take the deduction now versus years into the future. Something to look into.
