I received a new mortgage loan on 1/25/18. My mortgage interest was 11,805.61. How do I calculate the mortgage interest that California will allow?

[merv]

I'm stuck at California "Mortgage interest Adjustment"  

[hbl3973]

The issue here is that starting in 2018, mortgage interest deduction at the federal level is allowed only against the first $750,000 of loans taken out after 12/15/2017.  California kept $1,000,000 as that figure.  So if the mortgage balance is more than $750,000, multiply the federal mortgage interest deduction by the ratio of [MIN(Balance,1000000)/750000-1] to get the CA adjustment.  To compute "the" mortgage balance for both federal and state, IRS publication 936 (https://www.irs.gov/pub/irs-pdf/p936.pd) suggests you use an "average balance" as they detail to minimize the value to use in the calculations.

[vadimy]

Thank you for providing the formula, I just wanted to double check one aspect of that calculation:

Say the total amount of mortgage interest reported on the 1098 forms is  MI, and let us assume that the average loan amount L over the course of the year is above the California mortgage deduction limit of $1,000,000.

For the Federal mortgage interest deduction, the deductible fraction of MI  is  750,000 / L.  For example for a $1,500,000 loan, MI would have to be multiplied by 0.5 (50%).

For California, the deductible fraction is 1,000,000 / L., so  for the same loan, MI would be multiplied by 0.6666 (2/3).

The difference between the Federal and California deduction (in terms of dollars) would be:

MI * (1,000,000 / L   - 750,000 /L) = MI * (250,000 / L). = MI * 0.16.   E.g. for a Mortgage Interest of $30,000, one could deduct an additional $4,800 on top of the Federal deduction.

Is this correct?

Thanks in advance!