During the year 2018, I converted my rental property to personal use. I was able to deduct a portion of mortgage interest associated with this property on my federal

[0dessa73]

However for California, it was taken out of CA itemized deductions through CA adjustments. Are there limitations in CA for rental to personal conversion deductions?

[KatrinaB]

Yes, there is a limit in 2018 for mortgage interest deduction taken on investment income. For federal purposes only, rental real estate activities conducted by persons in a real property business are not automatically treated as passive activities. California does not conform to this provision. Investment expenses are your allowed deductions, other than interest expense, directly connected with the production of investment income.

Form FTB 3526, Investment Interest Expense Deduction, is used to figure the amount of investment interest expense deductible for the current year and the amount, if any, to carry forward to future years. Interest expense paid by an individual, estate, or trust on a loan allocable to property held for investment may not be fully deductible in the current year.

Please click the California link below for more information about this limit on the deduction of business interest.

https://www.ftb.ca.gov/forms/2018/18_540cains.pdf

[craighochhaus]

Why would the fed tax law changes lead to disallowing the personal part of the mtg interest on itemized deductions for CA while continuing to allow it (ie personal usage percentage of interest passes through to Itemized Deductions on IRS schedule A)?