CA AMT (Schedule P Line 4) adds back full home mortgage interest instead of only non-acquisition interest

[PavelMakarchuk]

Summary

California's AMT (Schedule P (540)) adds back the full home mortgage interest deduction, including acquisition interest. Schedule P Line 4 only adds back non-acquisition mortgage interest, so PE creates a phantom CA AMT for taxpayers with an ordinary home-acquisition mortgage.

Originating TAXSIM comparison: PolicyEngine/policyengine-taxsim#973

Legal basis

CA Schedule P (540), Part I, Line 4: "Certain interest on a home mortgage not used to buy, build, or improve your home." This mirrors federal Form 6251 line 2e — only non-acquisition (home-equity) interest is added back for AMT. Acquisition mortgage interest is not added back.

Root cause

ca/.../amt/amti/sources.yaml lists mortgage_interest for line 4, and ca_amti_adjustments adds back the entire amount. PE's federal AMT correctly excludes acquisition interest (amt_income is unaffected), so CA is internally inconsistent with the federal treatment it's meant to mirror.

Reproduction (CA MFJ, $168,340 interest, $50,000 acquisition mortgage, TY2025)

Proven by decomposition: ca_amti_adjustments = $50,000, entirely mortgage_interest (all other AMTI sources $0).

	PE	Correct (NBER binary / TaxAct)
ca_amt	$2,391.80	$0
ca_income_tax	$6,321.16	$3,929

Suggested fix

Line 4 of the CA AMTI sources should reference only non-acquisition home mortgage interest (as the federal AMT does), not the full mortgage_interest.

Integration test

- name: CA AMT does not add back acquisition home mortgage interest
  period: 2025
  input:
    people:
      head: {age: 45, taxable_interest_income: 168_340.64, deductible_mortgage_interest: 50_000}
      spouse: {age: 45}
    tax_units: {tax_unit: {members: [head, spouse]}}
    households: {household: {members: [head, spouse], state_code: CA}}
  output:
    ca_amt: 0