diff --git a/changelog.d/state-mortgage-interest-federal-cap.fixed.md b/changelog.d/state-mortgage-interest-federal-cap.fixed.md
new file mode 100644
index 00000000000..c99e111f41a
--- /dev/null
+++ b/changelog.d/state-mortgage-interest-federal-cap.fixed.md
@@ -0,0 +1 @@
+Limit Alabama's and North Carolina's mortgage interest deductions to the federally allowed amount after the 26 U.S.C. 163(h)(3) acquisition-debt limits, and Hawaii's to its own pre-TCJA limits ($1,000,000 of acquisition debt plus $100,000 of home equity debt) under HRS 235-2.4, instead of all interest paid.
diff --git a/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_acquisition_debt_limit.yaml b/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_acquisition_debt_limit.yaml
new file mode 100644
index 00000000000..7d5104076b4
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_acquisition_debt_limit.yaml
@@ -0,0 +1,31 @@
+description: Hawaii limits the home acquisition debt on which mortgage interest is deductible to this amount, reduced by any grandfathered debt, based on filing status.
+SINGLE:
+  2018-01-01: 1_000_000
+JOINT:
+  2018-01-01: 1_000_000
+SEPARATE:
+  2018-01-01: 500_000
+HEAD_OF_HOUSEHOLD:
+  2018-01-01: 1_000_000
+SURVIVING_SPOUSE:
+  2018-01-01: 1_000_000
+metadata:
+  propagate_metadata_to_children: true
+  breakdown: filing_status
+  unit: currency-USD
+  period: year
+  label: Hawaii home acquisition debt limit
+  reference:
+    # HRS 235-2.4 makes IRC 163(h)(3)(F), which lowers the limit to $750,000
+    # for later debt, inoperative, so the IRC 163(h)(3)(B)(ii) limit applies
+    # whenever the debt was incurred.
+    - title: Hawaii Revised Statutes 235-2.4(j)(3)
+      href: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0002_0004.htm
+    - title: Act 35, SLH 2026 (HB2329 CD1), HRS 235-2.4(i)(3), for taxable years beginning after December 31, 2025
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=20
+    - title: 2018 Hawaii N-11 Instructions, Line 21c (Act 27, SLH 2018 does not lower the limit)
+      href: https://files.hawaii.gov/tax/forms/2018/n11ins.pdf#page=19
+    - title: 2025 Hawaii N-11 Instructions, Line 21c
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17
+    - title: 2017 IRS Publication 936, Table 1, line 3
+      href: https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=11
diff --git a/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_equity_debt_limit.yaml b/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_equity_debt_limit.yaml
new file mode 100644
index 00000000000..0cadb08f61d
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/interest/home_equity_debt_limit.yaml
@@ -0,0 +1,31 @@
+description: Hawaii limits the home equity debt on which mortgage interest is deductible to this amount, based on filing status.
+SINGLE:
+  2018-01-01: 100_000
+JOINT:
+  2018-01-01: 100_000
+SEPARATE:
+  2018-01-01: 50_000
+HEAD_OF_HOUSEHOLD:
+  2018-01-01: 100_000
+SURVIVING_SPOUSE:
+  2018-01-01: 100_000
+metadata:
+  propagate_metadata_to_children: true
+  breakdown: filing_status
+  unit: currency-USD
+  period: year
+  label: Hawaii home equity debt limit
+  reference:
+    # HRS 235-2.4 makes IRC 163(h)(3)(F), which suspends the home equity
+    # interest deduction, inoperative, so the IRC 163(h)(3)(C)(ii) limit
+    # applies.
+    - title: Hawaii Revised Statutes 235-2.4(j)(3)
+      href: https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0002_0004.htm
+    - title: Act 35, SLH 2026 (HB2329 CD1), HRS 235-2.4(i)(3), for taxable years beginning after December 31, 2025
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=20
+    - title: 2018 Hawaii N-11 Instructions, Line 21c (Act 27, SLH 2018 does not suspend home equity interest)
+      href: https://files.hawaii.gov/tax/forms/2018/n11ins.pdf#page=19
+    - title: 2025 Hawaii N-11 Instructions, Line 21c
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17
+    - title: "2017 IRS Publication 936, Home equity debt limit and Table 1, line 7 #page 10-11"
+      href: https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=10
diff --git a/policyengine_us/tests/core/test_hi_mortgage_debt_limit_invariants.py b/policyengine_us/tests/core/test_hi_mortgage_debt_limit_invariants.py
new file mode 100644
index 00000000000..000d445a40e
--- /dev/null
+++ b/policyengine_us/tests/core/test_hi_mortgage_debt_limit_invariants.py
@@ -0,0 +1,285 @@
+"""Invariants for Hawaii's mortgage debt limits.
+
+HRS 235-2.4(j)(3) (235-2.4(i)(3) from 2026) makes IRC 163(h)(3)(F)
+inoperative, so Hawaii keeps the pre-TCJA limits for debt incurred at any
+time. IRS Publication 936 (2017), Table 1 (PDF page 11), computes them:
+grandfathered debt, incurred on or before October 13, 1987, has no dollar
+limit and reduces the $1,000,000 acquisition-debt limit ($500,000 married
+filing separately); up to $100,000 ($50,000) of debt above that limit counts
+as home equity debt (Figure A, note 3, PDF page 3).
+
+The law does not prescribe allocation rounding. PE uses the N-11 / 2017
+Publication 936 worksheet as a gap-fill and separately applies a federal
+deduction floor as its chosen approximation. The floor is a PE safeguard,
+not part of worksheet line 12.
+
+Hypothesis draws pairs of loans around every cutoff and limit and checks
+_hi_qualified_loan_limit against two independent restatements, one line by
+line from Table 1 and one in the statute's order, and against the federal
+helper:
+
+1. Differential: the helper equals both restatements.
+2. Bounds: grandfathered debt <= Hawaii limit <= total debt, and the Hawaii
+   limit is at least the federal limit for the same loans. PE's chosen
+   approximation separately preserves the federal deduction floor below.
+3. Order: swapping the two loans never changes the limit.
+4. Vintage: Hawaii has one limit for debt incurred after October 13, 1987, so
+   moving a loan between 2017 and 2018 never changes the limit, while moving
+   it into the grandfathered years never lowers it.
+5. Monotone: a larger balance never lowers the limit.
+6. Share: line 11, the limit over total debt "rounded to three places", lies
+   in [0, 1], within half a thousandth of the exact ratio and, for the drawn
+   balances, at or above the federal (exact) share. It is the same whether
+   the balances arrive in single precision, as in a simulation, or double.
+7. PE safeguard: the Hawaii deduction lies between the federal deduction and
+   the interest paid, equals the federal deduction when federal law disallows
+   nothing (so a deduction supplied directly is not limited again), and
+   otherwise equals worksheet interest paid times line 11, floored by PE at
+   the federal amount.
+
+The limits are read from the Hawaii and federal parameters for every filing
+status in 2018, 2025 and 2026, so the properties hold for the values the model
+uses. A separate check ties the Hawaii parameters to the statute's dollar
+amounts.
+
+These are for-all properties of the helpers, which YAML cannot state. The
+policy outcomes and interest proration are checked in
+hi_mortgage_interest_deduction.yaml.
+"""
+
+import numpy as np
+from hypothesis import given, settings
+from hypothesis import strategies as st
+
+from policyengine_us.system import system
+from policyengine_us.variables.gov.states.hi.tax.income.deductions.itemized.hi_mortgage_interest_deduction import (
+    _hi_allowed_interest,
+    _hi_deductible_share,
+    _hi_qualified_loan_limit,
+)
+from policyengine_us.variables.household.expense.tax_unit.mortgage_interest_structure import (
+    _debt_by_vintage,
+    _qualified_loan_limit,
+)
+
+GRANDFATHERED_YEAR = 1987
+PRE_TCJA_YEAR = 2017
+FILING_STATUSES = (
+    "SINGLE",
+    "JOINT",
+    "SEPARATE",
+    "HEAD_OF_HOUSEHOLD",
+    "SURVIVING_SPOUSE",
+)
+TAX_YEARS = (2018, 2025, 2026)
+
+
+def parameter_limits(year, filing_status):
+    """((Hawaii acquisition limit, Hawaii home equity limit), (federal limit
+    for debt from 2017 or earlier, federal limit for later debt))."""
+    p = system.parameters(f"{year}-01-01")
+    hawaii = p.gov.states.hi.tax.income.deductions.itemized.interest
+    federal = p.gov.irs.deductions.itemized.interest.mortgage
+    return (
+        (
+            float(hawaii.home_acquisition_debt_limit[filing_status]),
+            float(hawaii.home_equity_debt_limit[filing_status]),
+        ),
+        (
+            float(federal.pre_tcja_cap[filing_status]),
+            float(federal.cap[filing_status]),
+        ),
+    )
+
+
+# (tax year, filing status) -> limits, read once from the parameter tree.
+LIMITS = {
+    (year, filing_status): parameter_limits(year, filing_status)
+    for year in TAX_YEARS
+    for filing_status in FILING_STATUSES
+}
+TOLERANCE = 0.01
+
+YEARS = (0, 1960, 1986, 1987, 1988, 2000, 2016, 2017, 2018, 2025)
+BOUNDARY_BALANCES = (
+    0,
+    1,
+    50_000,
+    100_000,
+    375_000,
+    500_000,
+    550_000,
+    750_000,
+    1_000_000,
+    1_100_000,
+)
+balances = st.one_of(
+    st.sampled_from(BOUNDARY_BALANCES),
+    st.integers(0, 3_000_000),
+).map(float)
+loans = st.tuples(balances, st.sampled_from(YEARS))
+
+
+def grandfathered(year):
+    return 0 < year <= GRANDFATHERED_YEAR
+
+
+def split(loan_list):
+    old = sum(balance for balance, year in loan_list if grandfathered(year))
+    other = sum(balance for balance, year in loan_list if not grandfathered(year))
+    return old, other
+
+
+def table_1(loan_list, limits):
+    """Publication 936 (2017) Table 1, lines 1-8."""
+    acquisition_limit, home_equity_limit = limits
+    line_1, line_2 = split(loan_list)
+    line_3 = acquisition_limit
+    line_4 = max(line_1, line_3)
+    line_5 = line_1 + line_2
+    line_6 = min(line_4, line_5)
+    # Debt above the acquisition limit, up to the home equity limit.
+    line_7 = min(line_5 - line_6, home_equity_limit)
+    return line_6 + line_7
+
+
+def statute(loan_list, limits):
+    """26 U.S.C. 163(h)(3)(B)(ii), (C)(ii) and (D) without (F), in order."""
+    acquisition_limit, home_equity_limit = limits
+    old, other = split(loan_list)
+    acquisition = min(other, max(0.0, acquisition_limit - old))
+    home_equity = min(home_equity_limit, other - acquisition)
+    return old + acquisition + home_equity
+
+
+def model_limit(loan_list, limits):
+    debt = _debt_by_vintage(
+        [np.array([balance]) for balance, _ in loan_list],
+        [np.array([year]) for _, year in loan_list],
+        GRANDFATHERED_YEAR,
+        PRE_TCJA_YEAR,
+    )
+    old, pre, post = debt
+    return float(_hi_qualified_loan_limit(old, pre + post, *limits)[0])
+
+
+def federal_limit(loan_list, limits):
+    debt = _debt_by_vintage(
+        [np.array([balance]) for balance, _ in loan_list],
+        [np.array([year]) for _, year in loan_list],
+        GRANDFATHERED_YEAR,
+        PRE_TCJA_YEAR,
+    )
+    return float(_qualified_loan_limit(*debt, *limits)[0])
+
+
+SETTINGS = dict(max_examples=400, deadline=None, derandomize=True)
+
+
+def test_hawaii_limits_are_the_statutory_amounts():
+    # IRC 163(h)(3)(B)(ii) and (C)(ii), kept by HRS 235-2.4(j)(3): $1,000,000
+    # of acquisition debt and $100,000 of home equity debt, halved for a
+    # married individual filing a separate return.
+    for (year, filing_status), (hawaii_limits, _) in LIMITS.items():
+        expected = (
+            (500_000, 50_000) if filing_status == "SEPARATE" else (1_000_000, 100_000)
+        )
+        assert hawaii_limits == expected, (year, filing_status)
+
+
+@settings(**SETTINGS)
+@given(first=loans, second=loans, status=st.sampled_from(sorted(LIMITS)))
+def test_hawaii_qualified_loan_limit_properties(first, second, status):
+    hawaii_limits, federal_limits = LIMITS[status]
+    pair = [first, second]
+    limit = model_limit(pair, hawaii_limits)
+    old, other = split(pair)
+    total = old + other
+
+    # 1. Differential.
+    assert abs(limit - table_1(pair, hawaii_limits)) <= TOLERANCE
+    assert abs(limit - statute(pair, hawaii_limits)) <= TOLERANCE
+
+    # 2. Bounds.
+    assert old - TOLERANCE <= limit <= total + TOLERANCE
+    assert limit >= federal_limit(pair, federal_limits) - TOLERANCE
+
+    # 3. Order.
+    assert abs(model_limit([second, first], hawaii_limits) - limit) <= TOLERANCE
+
+    for i, (balance, year) in enumerate(pair):
+        # 4. Vintage.
+        for other_year in YEARS:
+            moved = list(pair)
+            moved[i] = (balance, other_year)
+            moved_limit = model_limit(moved, hawaii_limits)
+            if grandfathered(other_year) == grandfathered(year):
+                assert abs(moved_limit - limit) <= TOLERANCE
+            elif grandfathered(other_year):
+                assert moved_limit >= limit - TOLERANCE
+
+        # 5. Monotone.
+        bigger = list(pair)
+        bigger[i] = (balance + 100_000, year)
+        assert model_limit(bigger, hawaii_limits) >= limit - TOLERANCE
+
+    # 6. Share.
+    share = float(_hi_deductible_share(np.array([limit]), np.array([total]))[0])
+    assert 0 <= share <= 1
+    if total > 0:
+        assert abs(share - limit / total) <= 0.0005 + 1e-9
+        assert share >= federal_limit(pair, federal_limits) / total - 1e-9
+    else:
+        assert share == 1
+    single = _hi_deductible_share(
+        np.array([limit], dtype=np.float32), np.array([total], dtype=np.float32)
+    )
+    assert float(single[0]) == share
+
+
+amounts = st.one_of(st.just(0.0), st.floats(0, 500_000, allow_nan=False))
+
+
+@settings(**SETTINGS)
+@given(
+    deductible=amounts,
+    non_deductible=amounts,
+    share=st.one_of(st.sampled_from((0.0, 0.5, 0.733, 1.0)), st.floats(0, 1)),
+)
+def test_hawaii_allowed_interest_properties(deductible, non_deductible, share):
+    allowed = float(
+        _hi_allowed_interest(
+            np.array([deductible]), np.array([non_deductible]), np.array([share])
+        )[0]
+    )
+    paid = deductible + non_deductible
+    # 7. PE federal-floor safeguard.
+    assert deductible - TOLERANCE <= allowed <= paid + TOLERANCE
+    if non_deductible == 0:
+        assert allowed == deductible
+    else:
+        assert abs(allowed - max(paid * share, deductible)) <= TOLERANCE
+
+
+def test_hawaii_share_rounds_half_up_to_three_places():
+    limits = np.array([550_000.0, 1_100_000.0, 1_100_000.0, 0.0])
+    debt = np.array([1_760_000.0, 1_500_000.0, 1_300_000.0, 0.0])
+    # .3125 rounds up to .313; .7333 down to .733; .8462 down to .846; no
+    # balance gives one.
+    np.testing.assert_allclose(
+        _hi_deductible_share(limits, debt), [0.313, 0.733, 0.846, 1.0]
+    )
+    # .97449999 rounds down, in single precision too.
+    near_tie = _hi_deductible_share(
+        np.array([1_100_000], dtype=np.float32),
+        np.array([1_128_784], dtype=np.float32),
+    )
+    np.testing.assert_array_equal(near_tie, [0.974])
+    # The share stays 1.000 until total debt passes $1,100,000 / .9995 =
+    # $1,100,550.28, in single precision too.
+    for dtype in (np.float32, np.float64):
+        boundary = _hi_deductible_share(
+            np.full(4, 1_100_000, dtype=dtype),
+            np.array([1_100_000, 1_100_550, 1_100_551, 1_101_000], dtype=dtype),
+        )
+        np.testing.assert_array_equal(boundary, [1.0, 1.0, 0.999, 0.999])
diff --git a/policyengine_us/tests/policy/baseline/gov/states/al/tax/income/deductions/itemized/al_interest_deduction.yaml b/policyengine_us/tests/policy/baseline/gov/states/al/tax/income/deductions/itemized/al_interest_deduction.yaml
index cdc2ff16ce1..8fbe24e69ec 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/al/tax/income/deductions/itemized/al_interest_deduction.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/al/tax/income/deductions/itemized/al_interest_deduction.yaml
@@ -1,3 +1,162 @@
+# Code of Alabama 40-18-15(a)(2) limits the interest deduction to "the amount
+# allowable as an interest deduction for federal income tax purposes in the
+# corresponding tax year", and the Form 40 instructions for Schedule A lines
+# 10a through 14 use "the same amount as currently allowable for federal
+# purposes" (2025 booklet, PDF pages 19-20). So Alabama allows the home
+# mortgage interest left after the 26 U.S.C. 163(h)(3) acquisition-debt
+# limits (IRS Publication 936 (2025), Table 1):
+#   grandfathered debt (1987 or earlier): no dollar limit
+#   other debt from 2017 or earlier: $1,000,000 ($500,000 separate)
+#   debt from 2018 or later: $750,000 ($375,000 separate)
+# Deductible interest = interest x qualified loan limit / total debt. The
+# expectations follow PolicyEngine's federal calculation, which uses the exact
+# ratio; Table 1 line 14 rounds it to three places, which moves some amounts
+# by up to 0.05% of the interest (for example $26,680 rather than $26,666.67
+# for the 2016 case below).
+
+- name: Interest on debt above the federal limit is not deductible
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # $40,000 x $750,000 / $1,500,000 = $20,000. Before the fix Alabama
+    # allowed all $40,000.
+    deductible_mortgage_interest: 20_000
+    al_interest_deduction: 20_000
+
+- name: Interest on debt within the federal limit is fully deductible
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: SINGLE
+    home_mortgage_interest: 24_000
+    first_home_mortgage_balance: 600_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    al_interest_deduction: 24_000
+
+- name: Interest is fully deductible when no balance is reported
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+  output:
+    al_interest_deduction: 40_000
+
+- name: Grandfathered debt above $1,000,000 is fully deductible
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: JOINT
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 1986
+  output:
+    al_interest_deduction: 40_000
+
+- name: Debt from 2017 or earlier keeps the $1,000,000 limit
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: AL
+    filing_status: JOINT
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2016
+  output:
+    # $40,000 x $1,000,000 / $1,500,000.
+    al_interest_deduction: 26_666.67
+
+- name: Earlier debt of $750,000 or more leaves no room under the later limit
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: JOINT
+    home_mortgage_interest: 42_500
+    first_home_mortgage_balance: 900_000
+    first_home_mortgage_origination_year: 2020
+    second_home_mortgage_balance: 800_000
+    second_home_mortgage_origination_year: 2016
+  output:
+    # Qualified loan limit = $800,000 of 2016 debt; the 2020 debt adds
+    # nothing because $800,000 already exceeds $750,000.
+    # $42,500 x $800,000 / $1,700,000 = $20,000.
+    al_interest_deduction: 20_000
+
+- name: Married filing separately uses the $375,000 limit
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: SEPARATE
+    home_mortgage_interest: 24_000
+    first_home_mortgage_balance: 600_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # $24,000 x $375,000 / $600,000.
+    al_interest_deduction: 15_000
+
+- name: Investment interest is added to the federally allowed mortgage interest
+  period: 2025
+  input:
+    state_code: AL
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    investment_interest_expense: 2_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    al_interest_deduction: 22_000
+
+- name: The federal limit stays at $750,000 in 2026
+  period: 2026
+  input:
+    state_code: AL
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # P.L. 119-21 section 70108 made the $750,000 limit permanent.
+    al_interest_deduction: 20_000
+
+- name: Spouses' interest is limited together and reaches the itemized total
+  period: 2025
+  input:
+    people:
+      head:
+        age: 45
+        home_mortgage_interest: 30_000
+      spouse:
+        age: 45
+        home_mortgage_interest: 10_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        first_home_mortgage_balance: 1_500_000
+        first_home_mortgage_origination_year: 2020
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: AL
+  output:
+    # $40,000 x $750,000 / $1,500,000 = $20,000, split in proportion to
+    # each spouse's interest.
+    deductible_mortgage_interest: [15_000, 5_000]
+    al_interest_deduction: 20_000
+    # No other itemized deduction applies.
+    al_itemized_deductions: 20_000
+
+# Qualified mortgage insurance premiums follow the federal deduction under
+# 26 U.S.C. 163(h)(3)(E) (2021 Schedule A (Form 40), line 11).
+
 - name: Qualified premiums for both residences enter Alabama interest deduction
   period: 2021
   input:
diff --git a/policyengine_us/tests/policy/baseline/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.yaml b/policyengine_us/tests/policy/baseline/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.yaml
new file mode 100644
index 00000000000..c024fda7946
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.yaml
@@ -0,0 +1,372 @@
+# HRS 235-2.4(j)(3) (235-2.4(i)(3) from 2026, Act 35, SLH 2026) makes IRC
+# 163(h)(3)(F) inoperative, so Hawaii keeps the pre-TCJA limits for debt
+# incurred at any time (2018 N-11 instructions, PDF page 19; 2025, PDF page
+# 17). IRS Publication 936 (2017), Table 1 (PDF page 11):
+#   G = grandfathered debt, 1987 or earlier (line 1); A = other debt (line 2)
+#   line 6 = min(max(G, $1,000,000), G + A)
+#   line 7 = min(G + A - line 6, $100,000): debt above the acquisition limit
+#            may qualify as home equity debt (Figure A, note 3, PDF page 3)
+#   line 8 = line 6 + line 7 (qualified loan limit)
+#   line 11 = line 8 / (G + A), "rounded to three places"
+#   line 12 = interest x line 11
+# The 2025 N-11 instructions (line 21c) send filers to this worksheet, which
+# fills the law's allocation-rounding gap. PE separately floors the result
+# at its federal deduction as a safeguard; that floor is not worksheet line 12.
+# Limits are halved for married filing separately. PolicyEngine's federal
+# deduction uses the $750,000 limit for debt from 2018 or later, no home
+# equity debt and the exact ratio (its worksheet rounds too). Interest paid
+# (line 10) is the federally deductible and non-deductible parts together; a
+# deduction supplied directly has already been limited and passes through.
+
+- name: Hawaii allows interest on $1,000,000 of acquisition debt plus $100,000 of home equity debt
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $40,000 x $750,000 / $1,500,000 = $20,000.
+    deductible_mortgage_interest: 20_000
+    # Hawaii: line 11 = ($1,000,000 + $100,000) / $1,500,000 = .733;
+    # $40,000 x .733. Before the fix Hawaii allowed all $40,000.
+    hi_mortgage_interest_deduction: 29_320
+    hi_interest_deduction: 29_320
+
+- name: Debt between the federal and Hawaii limits is fully deductible in Hawaii
+  period: 2025
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 36_000
+    first_home_mortgage_balance: 900_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $36,000 x $750,000 / $900,000 = $30,000.
+    deductible_mortgage_interest: 30_000
+    hi_mortgage_interest_deduction: 36_000
+
+- name: Up to $100,000 above the acquisition limit counts as home equity debt
+  period: 2025
+  input:
+    state_code: HI
+    filing_status: JOINT
+    home_mortgage_interest: 42_000
+    first_home_mortgage_balance: 1_050_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Line 6 = $1,000,000; line 7 = min($50,000, $100,000); line 8 equals
+    # the whole balance.
+    hi_mortgage_interest_deduction: 42_000
+
+- name: Interest on debt within both limits is fully deductible
+  period: 2025
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 24_000
+    first_home_mortgage_balance: 600_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    deductible_mortgage_interest: 24_000
+    hi_mortgage_interest_deduction: 24_000
+
+- name: Interest is fully deductible when no balance is reported
+  period: 2025
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+  output:
+    hi_mortgage_interest_deduction: 40_000
+
+- name: Grandfathered debt above $1,000,000 is fully deductible
+  period: 2025
+  input:
+    state_code: HI
+    filing_status: JOINT
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 1986
+  output:
+    hi_mortgage_interest_deduction: 40_000
+
+- name: Grandfathered debt uses up the acquisition limit but not the home equity limit
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: JOINT
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_200_000
+    first_home_mortgage_origination_year: 1985
+    second_home_mortgage_balance: 300_000
+    second_home_mortgage_origination_year: 2020
+  output:
+    # Federal: qualified loan limit $1,200,000; $40,000 x 1.2 / 1.5.
+    deductible_mortgage_interest_tax_unit: 32_000
+    # Hawaii: line 6 = $1,200,000; line 7 = min($300,000, $100,000);
+    # line 11 = $1,300,000 / $1,500,000 = .867; $40,000 x .867.
+    hi_mortgage_interest_deduction: 34_680
+
+- name: Married filing separately uses the $500,000 and $50,000 limits
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SEPARATE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $40,000 x $375,000 / $1,500,000 = $10,000.
+    deductible_mortgage_interest: 10_000
+    # Hawaii: line 11 = ($500,000 + $50,000) / $1,500,000 = .367;
+    # $40,000 x .367.
+    hi_mortgage_interest_deduction: 14_680
+
+- name: Debt exactly at Hawaii's $1,100,000 limit is fully deductible
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 44_000
+    first_home_mortgage_balance: 1_100_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $44,000 x $750,000 / $1,100,000 = $30,000.
+    deductible_mortgage_interest: 30_000
+    # Hawaii: line 6 = $1,000,000; line 7 = min($100,000, $100,000); line 8
+    # = $1,100,000 equals line 9, so "stop here": all $44,000 is deductible.
+    hi_mortgage_interest_deduction: 44_000
+
+- name: Debt just over Hawaii's $1,100,000 limit takes the rounded share
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 44_000
+    first_home_mortgage_balance: 1_101_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $44,000 x $750,000 / $1,101,000 = $29,972.75.
+    deductible_mortgage_interest: 29_972.75
+    # Hawaii: line 8 = $1,100,000 < line 9 = $1,101,000; line 11 =
+    # .99909 rounds to .999; $44,000 x .999. Three-place rounding keeps the
+    # share at 1.000 until total debt passes about $1,100,550 ($1,100,000 /
+    # .9995).
+    hi_mortgage_interest_deduction: 43_956
+
+- name: A separate filer's debt exactly at Hawaii's $550,000 limit is fully deductible
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SEPARATE
+    home_mortgage_interest: 22_000
+    first_home_mortgage_balance: 550_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $22,000 x $375,000 / $550,000 = $15,000.
+    deductible_mortgage_interest: 15_000
+    # Hawaii: line 6 = $500,000; line 7 = min($50,000, $50,000); line 8 =
+    # $550,000 equals line 9, so all $22,000 is deductible.
+    hi_mortgage_interest_deduction: 22_000
+
+- name: A head of household uses the $1,000,000 and $100,000 limits
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: HEAD_OF_HOUSEHOLD
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $40,000 x $750,000 / $1,500,000 = $20,000.
+    deductible_mortgage_interest: 20_000
+    # Hawaii: line 11 = ($1,000,000 + $100,000) / $1,500,000 = .733;
+    # $40,000 x .733.
+    hi_mortgage_interest_deduction: 29_320
+
+- name: A surviving spouse uses the $1,000,000 and $100,000 limits
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SURVIVING_SPOUSE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Federal: $40,000 x $750,000 / $1,500,000 = $20,000.
+    deductible_mortgage_interest: 20_000
+    # Hawaii: line 11 = ($1,000,000 + $100,000) / $1,500,000 = .733;
+    # $40,000 x .733.
+    hi_mortgage_interest_deduction: 29_320
+
+- name: Hawaii keeps its limits in 2026 under Act 35
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    deductible_mortgage_interest: 20_000
+    hi_mortgage_interest_deduction: 29_320
+
+- name: The interest deduction adds investment interest to Hawaii's mortgage interest
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    investment_interest_expense: 2_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    hi_interest_deduction: 31_320
+
+- name: Spouses' interest is limited together
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 45
+        employment_income: 150_000
+        home_mortgage_interest: 30_000
+      spouse:
+        age: 45
+        employment_income: 50_000
+        home_mortgage_interest: 10_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        first_home_mortgage_balance: 1_500_000
+        first_home_mortgage_origination_year: 2020
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: HI
+  output:
+    deductible_mortgage_interest: [15_000, 5_000]
+    # $40,000 x .733.
+    hi_mortgage_interest_deduction: 29_320
+
+# Companion cases of TheAxiomFoundation/rulespec-us#1556, computed by hand
+# from the 2017 Publication 936 Table 1 and the N-11 instructions.
+
+- name: Line 11 rounds the ratio to three places before multiplying
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 90_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # round($1,100,000 / $1,500,000, 3) = .733; .733 x $90,000.
+    hi_mortgage_interest_deduction: 65_970
+
+- name: A separate filer's balance above $500,000 counts as home equity debt up to $50,000
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SEPARATE
+    home_mortgage_interest: 30_000
+    first_home_mortgage_balance: 600_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # round($550,000 / $600,000, 3) = .917; .917 x $30,000.
+    hi_mortgage_interest_deduction: 27_510
+
+- name: Both homes' mortgages share one limit
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      head:
+        age: 45
+        home_mortgage_interest: 40_000
+      spouse:
+        age: 45
+        home_mortgage_interest: 25_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        first_home_mortgage_balance: 800_000
+        first_home_mortgage_origination_year: 2020
+        second_home_mortgage_balance: 500_000
+        second_home_mortgage_origination_year: 2021
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: HI
+  output:
+    # round($1,100,000 / $1,300,000, 3) = .846; .846 x $65,000.
+    hi_mortgage_interest_deduction: 54_990
+
+- name: Line 11 is rounded from the exact ratio
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_128_784
+    first_home_mortgage_origination_year: 2020
+  output:
+    # $1,100,000 / $1,128,784 = .97449999, which rounds to .974 (single
+    # precision would give .9745 and round up); .974 x $40,000.
+    hi_mortgage_interest_deduction: 38_960
+
+- name: PE's federal floor binds when worksheet rounding would allow less than federal
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 497_550_016
+    first_home_mortgage_origination_year: 1986
+    second_home_mortgage_balance: 2_449_984
+    second_home_mortgage_origination_year: 2020
+  output:
+    # Total debt is $500,000,000; the federal limit is $497,550,016.
+    # $40,000 x $497,550,016 / $500,000,000 = $39,804.00128.
+    deductible_mortgage_interest: 39_804
+    # Hawaii's limit is $497,650,016: line 11 rounds .995300032 to .995,
+    # so worksheet line 12 gives $39,800. PE's separate floor keeps the
+    # federal amount, about $39,804, instead.
+    hi_mortgage_interest_deduction: 39_804
+    hi_interest_deduction: 39_804
+
+- name: A deduction supplied directly is not limited a second time
+  period: 2025
+  input:
+    state_code: HI
+    filing_status: SINGLE
+    deductible_mortgage_interest: 20_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # The supplied $20,000 is already after the federal limit and no gross
+    # interest is reported, so Hawaii keeps it rather than taking .733 of it.
+    hi_mortgage_interest_deduction: 20_000
diff --git a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/itemized/nc_claim_of_right_deduction.yaml b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/itemized/nc_claim_of_right_deduction.yaml
index b0eafe19c2f..927ded40a87 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/itemized/nc_claim_of_right_deduction.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/itemized/nc_claim_of_right_deduction.yaml
@@ -323,7 +323,7 @@
       head:
         age: 40
         claim_of_right_repayment: 5_000
-        mortgage_interest: 18_000
+        home_mortgage_interest: 18_000
         real_estate_taxes: 6_000
     tax_units:
       tax_unit:
diff --git a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_itemized_deductions.yaml b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_itemized_deductions.yaml
index 2ec2b5c8876..b0cef847f3c 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_itemized_deductions.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_itemized_deductions.yaml
@@ -2,7 +2,7 @@
   period: 2022
   input:
     filing_status: JOINT
-    mortgage_interest: 9_000
+    home_mortgage_interest: 9_000
     real_estate_taxes: 11_000
     charitable_deduction: 0
     medical_expense_deduction: 0
@@ -14,7 +14,7 @@
   period: 2022
   input:
     filing_status: SURVIVING_SPOUSE
-    mortgage_interest: 11_000
+    home_mortgage_interest: 11_000
     real_estate_taxes: 11_000
     charitable_deduction: 0
     medical_expense_deduction: 0
@@ -26,7 +26,7 @@
   period: 2022
   input:
     filing_status: SURVIVING_SPOUSE
-    mortgage_interest: 11_000
+    home_mortgage_interest: 11_000
     real_estate_taxes: 11_000
     charitable_deduction: 1_000
     medical_expense_deduction: 500
@@ -38,7 +38,7 @@
   period: 2022
   input:
     filing_status: SEPARATE
-    mortgage_interest: 9_000
+    home_mortgage_interest: 9_000
     real_estate_taxes: 11_000
     charitable_deduction: 0
     medical_expense_deduction: 0
@@ -91,7 +91,7 @@
     health_insurance_premiums: 6_000
     self_employed_health_insurance_ald: 1_000
     other_medical_expenses: 500
-    mortgage_interest: 0
+    home_mortgage_interest: 0
     real_estate_taxes: 0
     charitable_deduction: 0
   output:
diff --git a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.yaml b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.yaml
index d4c2643bd29..034d74db93a 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.yaml
@@ -5,7 +5,7 @@
   period: 2024
   input:
     filing_status: JOINT
-    mortgage_interest: 9_000
+    home_mortgage_interest: 9_000
     real_estate_taxes: 4_000
     state_code: NC
   output:
@@ -15,7 +15,7 @@
   period: 2024
   input:
     filing_status: SEPARATE
-    mortgage_interest: 9_000
+    home_mortgage_interest: 9_000
     real_estate_taxes: 11_000
     state_code: NC
   output:
@@ -26,11 +26,102 @@
   period: 2024
   input:
     filing_status: SINGLE
-    mortgage_interest: 25_000
+    home_mortgage_interest: 25_000
     state_code: NC
   output:
     nc_mortgage_and_property_tax_before_limitation: 25_000
 
+# Line 1 is "the amount allowed as a deduction for interest paid or accrued
+# during the taxable year under section 163(h) of the Code with respect to any
+# qualified residence" (G.S. 105-153.5(a)(2)b; 2025 Form D-401, PDF page 20),
+# so the 26 U.S.C. 163(h)(3) acquisition-debt limits apply: $750,000
+# ($375,000 separate) for debt from 2018 or later, $1,000,000 ($500,000) for
+# other debt from 2017 or earlier, and no dollar limit for grandfathered debt
+# from 1987 or earlier (IRS Publication 936 (2025), Table 1). The expectations
+# follow PolicyEngine's federal calculation, which uses the exact ratio; Table
+# 1 line 14 rounds it to three places (for example $8,007 rather than $8,000
+# for the mixed-vintage case below).
+
+- name: Interest on debt above the federal limit is excluded
+  period: 2025
+  input:
+    state_code: NC
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # $40,000 x $750,000 / $1,500,000 = $20,000. Before the fix line 1 was
+    # all $40,000.
+    deductible_mortgage_interest: 20_000
+    nc_mortgage_and_property_tax_before_limitation: 20_000
+
+- name: Interest on debt within the federal limit is fully counted
+  period: 2025
+  input:
+    state_code: NC
+    filing_status: SINGLE
+    home_mortgage_interest: 24_000
+    real_estate_taxes: 3_000
+    first_home_mortgage_balance: 600_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    nc_mortgage_and_property_tax_before_limitation: 27_000
+
+- name: Grandfathered debt above $1,000,000 is fully counted
+  period: 2025
+  input:
+    state_code: NC
+    filing_status: JOINT
+    home_mortgage_interest: 15_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 1986
+  output:
+    nc_mortgage_and_property_tax_before_limitation: 15_000
+
+- name: Earlier debt of $750,000 or more leaves no room under the later limit
+  period: 2025
+  input:
+    state_code: NC
+    filing_status: JOINT
+    home_mortgage_interest: 17_000
+    first_home_mortgage_balance: 900_000
+    first_home_mortgage_origination_year: 2020
+    second_home_mortgage_balance: 800_000
+    second_home_mortgage_origination_year: 2016
+  output:
+    # Qualified loan limit = $800,000; $17,000 x $800,000 / $1,700,000.
+    nc_mortgage_and_property_tax_before_limitation: 8_000
+
+- name: Married filing separately uses the $375,000 limit
+  period: 2025
+  input:
+    state_code: NC
+    filing_status: SEPARATE
+    home_mortgage_interest: 24_000
+    first_home_mortgage_balance: 600_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # $24,000 x $375,000 / $600,000.
+    nc_mortgage_and_property_tax_before_limitation: 15_000
+
+- name: The July 5, 2025 Code keeps the $750,000 limit in 2026
+  period: 2026
+  input:
+    state_code: NC
+    filing_status: SINGLE
+    home_mortgage_interest: 40_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # S.L. 2026-31 section 12(a) adopts the Code as of July 5, 2025, which
+    # includes P.L. 119-21 section 70108's permanent $750,000 limit.
+    nc_mortgage_and_property_tax_before_limitation: 20_000
+
+# Qualified mortgage insurance premiums: North Carolina excludes them through
+# 2021, and from 2026 the conformed federal deduction joins line 1 before the
+# shared $20,000 cap.
+
 - name: North Carolina excludes mortgage insurance premiums through 2021
   period: 2021
   input:
@@ -85,9 +176,11 @@
   input:
     state_code: NC
     adjusted_gross_income: 80_000
-    mortgage_interest: 19_000
+    home_mortgage_interest: 19_000
     mortgage_insurance_premiums: 1_200
     second_residence_mortgage_insurance_premiums: 800
   output:
+    # With no balance reported, all $19,000 of interest is federally
+    # deductible: $19,000 + $2,000 of premiums = $21,000, capped at $20,000.
     nc_mortgage_and_property_tax_before_limitation: 21_000
     nc_mortgage_and_property_tax_deduction: 20_000
diff --git a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_deduction.yaml b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_deduction.yaml
index b22505ec460..a8dfcb63255 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_deduction.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_deduction.yaml
@@ -332,3 +332,54 @@
     nc_mortgage_and_property_tax_before_limitation: [25_000, 15_000]
     nc_mortgage_and_property_tax_limitation: [12_500, 0]
     nc_mortgage_and_property_tax_deduction: [12_500, 0]
+
+- name: Only federally allowed interest enters the $20,000 limitation
+  period: 2025
+  input:
+    state_code: NC
+    filing_status: SINGLE
+    home_mortgage_interest: 15_000
+    real_estate_taxes: 5_000
+    first_home_mortgage_balance: 1_500_000
+    first_home_mortgage_origination_year: 2020
+  output:
+    # Line 1 = $15,000 x $750,000 / $1,500,000 = $7,500 (section 163(h));
+    # line 3 = $7,500 + $5,000 = $12,500, under the $20,000 limitation.
+    # Before the fix line 3 was $20,000.
+    nc_mortgage_and_property_tax_deduction: 12_500
+
+- name: Spouses filing separately share the limitation using federally allowed interest
+  period: 2025
+  input:
+    people:
+      spouse1:
+        age: 45
+        employment_income: 100_000
+        home_mortgage_interest: 30_000
+      spouse2:
+        age: 45
+        employment_income: 100_000
+        home_mortgage_interest: 10_000
+    marital_units:
+      couple:
+        members: [spouse1, spouse2]
+    tax_units:
+      tax_unit1:
+        members: [spouse1]
+        filing_status: SEPARATE
+        first_home_mortgage_balance: 1_200_000
+        first_home_mortgage_origination_year: 2020
+      tax_unit2:
+        members: [spouse2]
+        filing_status: SEPARATE
+    households:
+      household:
+        members: [spouse1, spouse2]
+        state_code: NC
+  output:
+    # Spouse 1: $30,000 x $375,000 / $1,200,000 = $9,375. Spouse 2 reports
+    # no balance, so all $10,000 counts. Together $19,375 is under $20,000,
+    # so neither is prorated. Before the fix the $40,000 total was prorated
+    # to $15,000 and $5,000.
+    nc_mortgage_and_property_tax_before_limitation: [9_375, 10_000]
+    nc_mortgage_and_property_tax_deduction: [9_375, 10_000]
diff --git a/policyengine_us/variables/gov/states/al/tax/income/deductions/itemized/al_investment_interest.py b/policyengine_us/variables/gov/states/al/tax/income/deductions/itemized/al_investment_interest.py
index 9648bc2f892..01b57ac66ce 100644
--- a/policyengine_us/variables/gov/states/al/tax/income/deductions/itemized/al_investment_interest.py
+++ b/policyengine_us/variables/gov/states/al/tax/income/deductions/itemized/al_investment_interest.py
@@ -7,22 +7,36 @@ class al_interest_deduction(Variable):
     label = "Alabama interest deduction"
     unit = USD
     definition_period = YEAR
+    documentation = (
+        "Alabama limits the interest deduction to the amount allowable for "
+        "federal income tax purposes, so home mortgage interest on acquisition "
+        "debt above the 26 U.S.C. 163(h)(3) limits is not deductible."
+    )
     reference = (
-        "https://www.revenue.alabama.gov/wp-content/uploads/2022/06/21f40.pdf#page=3",
-        # Schedule A line 11: qualified mortgage insurance premiums.
-        "https://www.revenue.alabama.gov/wp-content/uploads/2022/06/21f40bk.pdf#page=19",
-        # Lines 10a-14 use the amount currently allowed for federal purposes.
+        # Code of Alabama Section 40-18-15(a)(2)
         "https://law.justia.com/codes/alabama/2022/title-40/chapter-18/article-1/section-40-18-15/",
-        # Code of Alabama Section 40-18-15
+        # 2025 Form 40 instructions, Schedule A lines 10a through 14,
+        # PDF pages 19-20
+        "https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf#page=19",
+        # 2021 Form 40 instructions, Schedule A lines 10a through 14: the
+        # amount currently allowed for federal purposes
+        "https://www.revenue.alabama.gov/wp-content/uploads/2022/06/21f40bk.pdf#page=19",
+        # 2021 Schedule A (Form 40), line 11: qualified mortgage insurance
+        # premiums
+        "https://www.revenue.alabama.gov/wp-content/uploads/2022/06/21f40.pdf#page=3",
+        # 2022 Schedule A (Form 40)
         "https://www.revenue.alabama.gov/ultraviewer/viewer/basic_viewer/index.html?form=2023/01/22f40schabdc_blk.pdf#page=1",
-        # 2022 Schedule A (Form 1040)
+        # 2021 Schedule A (Form 40)
         "https://www.revenue.alabama.gov/ultraviewer/viewer/basic_viewer/index.html?form=2022/06/21f40schabdc_blk.pdf#page=1",
-        # 2021 Schedule A (Form 1040)
     )
     defined_for = StateCode.AL
 
+    # Code of Alabama 40-18-15(a)(2): interest "limited to the amount
+    # allowable as an interest deduction for federal income tax purposes in
+    # the corresponding tax year", so mortgage interest follows the federal
+    # acquisition-debt limits.
     adds = [
-        "mortgage_interest",
+        "deductible_mortgage_interest",
         "investment_interest_expense",
         "deductible_mortgage_insurance_premiums",
     ]
diff --git a/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_interest_deduction.py b/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_interest_deduction.py
index 4b8f9a3707e..ec6b505c56b 100644
--- a/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_interest_deduction.py
+++ b/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_interest_deduction.py
@@ -7,7 +7,11 @@ class hi_interest_deduction(Variable):
     label = "Hawaii interest deduction"
     unit = USD
     reference = (
+        # 2022 N-11 instructions, line 21c and the total itemized deduction
+        # worksheet, PDF pages 17, 32
         "https://files.hawaii.gov/tax/forms/2022/n11ins.pdf#page=17",
+        # Tax Announcement 2021-01: supplemental instructions for the
+        # mortgage insurance premiums itemized deduction
         "https://files.hawaii.gov/tax/news/announce/ann21-01.pdf",
     )
     definition_period = YEAR
@@ -15,6 +19,6 @@ class hi_interest_deduction(Variable):
 
     adds = [
         "investment_interest_expense",
-        "mortgage_interest",
+        "hi_mortgage_interest_deduction",
         "hi_deductible_mortgage_insurance_premiums",
     ]
diff --git a/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.py b/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.py
new file mode 100644
index 00000000000..67a8036904a
--- /dev/null
+++ b/policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.py
@@ -0,0 +1,149 @@
+from policyengine_us.model_api import *
+from policyengine_us.variables.household.expense.tax_unit.mortgage_interest_structure import (
+    _debt_by_vintage,
+)
+
+
+def _hi_qualified_loan_limit(
+    grandfathered_debt,
+    other_debt,
+    home_acquisition_debt_limit,
+    home_equity_debt_limit,
+):
+    """2017 IRS Publication 936, Table 1, lines 1-8, as Hawaii applies it.
+
+    Hawaii makes IRC 163(h)(3)(F) inoperative, so it never lowers the
+    acquisition-debt limit for later debt or suspends home equity interest.
+    Grandfathered debt, incurred on or before October 13, 1987, has no dollar
+    limit but reduces the acquisition-debt limit for other debt (lines 1-6).
+    Debt above the acquisition-debt limit may qualify as home equity debt, up
+    to the home equity debt limit (line 7; Publication 936 (2017), Figure A,
+    note 3). The home equity debt limit is also capped by each home's fair
+    market value less its acquisition debt; PolicyEngine has no home value
+    input, so every home is treated as worth at least its mortgages.
+    """
+    total_debt = grandfathered_debt + other_debt
+    # Lines 3-6.
+    line_6 = min_(max_(grandfathered_debt, home_acquisition_debt_limit), total_debt)
+    # Line 7.
+    line_7 = min_(total_debt - line_6, home_equity_debt_limit)
+    # Line 8.
+    return line_6 + line_7
+
+
+def _hi_deductible_share(qualified_loan_limit, total_debt):
+    """2017 IRS Publication 936, Table 1, line 11.
+
+    The worksheet specifies the qualified loan limit divided by total debt,
+    "rounded to three places"; PE uses half-up rounding at ties. Interest is
+    treated as within the limits, a share of one, when no balance is
+    reported, as in the federal calculation. The
+    ratio is computed in double precision: in single precision a ratio just
+    below a half-thousandth, such as $1,100,000 / $1,128,784 = .97449999,
+    rounds the wrong way.
+    """
+    limit = np.asarray(qualified_loan_limit, dtype=np.float64)
+    debt = np.asarray(total_debt, dtype=np.float64)
+    ratio = np.divide(limit, debt, out=np.ones_like(debt), where=debt > 0)
+    return np.floor(ratio * 1_000 + 0.5) / 1_000
+
+
+def _hi_allowed_interest(deductible, non_deductible, deductible_share):
+    """N-11 / Publication 936 worksheet with a PE federal-floor safeguard.
+
+    The law does not prescribe allocation rounding, so the N-11 / 2017
+    Publication 936 worksheet supplies a gap-fill: line 11 rounds the share
+    to three places, and line 12 multiplies interest paid by that share.
+    Interest paid (line 10) is the federally deductible and non-deductible
+    parts together.
+
+    PE separately floors that worksheet result at its federal deduction.
+    This safeguard is PE's chosen approximation, not worksheet line 12; it
+    prevents rounded Hawaii interest from falling below PE's unrounded
+    federal calculation. When federal law disallows none of the interest,
+    keeping the federal amount also passes through a deduction supplied
+    directly, which the federal limits have already reduced.
+    """
+    hawaii = (deductible + non_deductible) * deductible_share
+    return where(non_deductible > 0, max_(hawaii, deductible), deductible)
+
+
+class hi_mortgage_interest_deduction(Variable):
+    value_type = float
+    entity = TaxUnit
+    label = "Hawaii home mortgage interest deduction"
+    unit = USD
+    definition_period = YEAR
+    documentation = (
+        "Home mortgage interest Hawaii allows. Hawaii makes IRC 163(h)(3)(F) "
+        "inoperative, so it keeps the pre-TCJA limits whenever the debt was "
+        "incurred: interest on up to $1,000,000 of home acquisition debt plus "
+        "$100,000 of home equity debt ($500,000 and $50,000 for married "
+        "filing separately), rather than the federal $750,000 limit for debt "
+        "incurred after December 15, 2017. The N-11 / Publication 936 "
+        "worksheet fills the law's allocation-rounding gap; PE separately "
+        "preserves its federal deduction as a safeguard."
+    )
+    reference = (
+        # HRS 235-2.4(j)(3), 235-2.5(b) and 235-3(a): retained limits,
+        # authority to adopt Treasury regulations and conformity of forms.
+        # PDF pages 11, 16-17.
+        "https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=11",
+        # Act 35, SLH 2026, HRS 235-2.4(i)(3)
+        "https://data.capitol.hawaii.gov/sessions/session2026/bills/GM1135_.PDF#page=21",
+        # HAR 18-235-2.3(a)(3) adopts federal regulations through January 1,
+        # 1979, before the 1987 temporary mortgage-interest regulation.
+        "https://files.hawaii.gov/tax/legal/har/har_235.pdf#page=15",
+        # Treasury Regulation 1.163-10T(c)-(g): alternative allocation
+        # methods without prescribed decimal rounding. PDF pages 3-4, 6.
+        "https://www.govinfo.gov/content/pkg/CFR-2025-title26-vol3/pdf/CFR-2025-title26-vol3-sec1-163-10T.pdf#page=3",
+        # CCA 201201017 (nonprecedential): reasonable allocation methods
+        # and approximations under the later debt limits.
+        "https://www.irs.gov/pub/irs-wd/1201017.pdf#page=5",
+        # 2025 N-11 instructions, line 21c
+        "https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17",
+        # 2017 Publication 936, Figure A note 3 (PDF page 3), home equity debt
+        # limit (PDF page 10) and Table 1 (PDF page 11, including the
+        # three-place rounding and multiplication, without PE's floor).
+        "https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=3",
+    )
+    defined_for = StateCode.HI
+
+    def formula(tax_unit, period, parameters):
+        balances = [
+            tax_unit("first_home_mortgage_balance", period).astype(np.float64),
+            tax_unit("second_home_mortgage_balance", period).astype(np.float64),
+        ]
+        origination_years = [
+            tax_unit("first_home_mortgage_origination_year", period),
+            tax_unit("second_home_mortgage_origination_year", period),
+        ]
+        p_irs = parameters(period).gov.irs.deductions.itemized.interest.mortgage
+        grandfathered_debt, pre_tcja_debt, post_tcja_debt = _debt_by_vintage(
+            balances,
+            origination_years,
+            p_irs.grandfathered_origination_year,
+            p_irs.pre_tcja_origination_year,
+        )
+        # Hawaii has one limit for debt incurred after October 13, 1987,
+        # whenever it was incurred.
+        other_debt = pre_tcja_debt + post_tcja_debt
+        filing_status = tax_unit("filing_status", period)
+        p = parameters(period).gov.states.hi.tax.income.deductions.itemized.interest
+        qualified_loan_limit = _hi_qualified_loan_limit(
+            grandfathered_debt,
+            other_debt,
+            p.home_acquisition_debt_limit[filing_status],
+            p.home_equity_debt_limit[filing_status],
+        )
+        # Lines 9 and 11. The 2025 N-11 instructions send filers to this
+        # worksheet, which supplies the rounding gap-fill; PolicyEngine's
+        # federal calculation uses the unrounded ratio.
+        total_debt = grandfathered_debt + other_debt
+        deductible_share = _hi_deductible_share(qualified_loan_limit, total_debt)
+        # Worksheet lines 10 and 12, with PE's separate federal-floor safeguard.
+        return _hi_allowed_interest(
+            add(tax_unit, period, ["deductible_mortgage_interest"]),
+            add(tax_unit, period, ["non_deductible_mortgage_interest"]),
+            deductible_share,
+        )
diff --git a/policyengine_us/variables/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.py b/policyengine_us/variables/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.py
index 578a7359c15..dbe79d0d0ac 100644
--- a/policyengine_us/variables/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.py
+++ b/policyengine_us/variables/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.py
@@ -7,10 +7,11 @@ class nc_mortgage_and_property_tax_before_limitation(Variable):
     label = "North Carolina mortgage interest and real estate property taxes before limitation"
     unit = USD
     definition_period = YEAR
-    documentation = "Form D-400 Schedule A line 3: home mortgage interest (line 1) plus real estate property taxes (line 2), before the $20,000 limitation. Calculated for all states so a separately filing spouse outside North Carolina contributes to the shared cap."
+    documentation = "Form D-400 Schedule A line 3: home mortgage interest (line 1) plus real estate property taxes (line 2), before the $20,000 limitation. Line 1 is the interest allowed under section 163(h) of the Code, after the federal acquisition-debt limits. Calculated for all states so a separately filing spouse outside North Carolina contributes to the shared cap."
     reference = (
         # SL 2026-31 section 12(a) adopts the IRC as of July 5, 2025,
-        # including the federal restoration of qualified premiums from 2026.
+        # including the permanent $750,000 acquisition-debt limit and the
+        # federal restoration of qualified premiums from 2026.
         "https://www.ncleg.gov/EnactedLegislation/SessionLaws/PDF/2025-2026/SL2026-31.pdf#page=42",
         # N.C. Gen. Stat. 105-153.5(a)(2)b
         "https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-153.5.html",
@@ -23,7 +24,10 @@ class nc_mortgage_and_property_tax_before_limitation(Variable):
     def formula(tax_unit, period, parameters):
         filing_status = tax_unit("filing_status", period)
 
-        mortgage_interest = add(tax_unit, period, ["mortgage_interest"])
+        # Line 1 is "the amount allowed as a deduction for interest ... under
+        # section 163(h) of the Code", so interest on acquisition debt above
+        # the federal limits is excluded.
+        mortgage_interest = add(tax_unit, period, ["deductible_mortgage_interest"])
         premiums_allowed = parameters(
             period
         ).gov.states.nc.tax.income.deductions.itemized.mortgage_insurance_premiums_allowed
diff --git a/source_conflicts/candidates.yaml b/source_conflicts/candidates.yaml
index b7a0a1b51ee..c169b6ec1e1 100644
--- a/source_conflicts/candidates.yaml
+++ b/source_conflicts/candidates.yaml
@@ -5950,30 +5950,41 @@ candidates:
 - id: us:mortgage-interest-limit-ratio-rounding
   program: income-tax
   years:
-    from: 2025
-    to: 2025
+    from: 2018
     type: tax
   question: Should the deductible share of mortgage interest above the debt limit use the exact ratio or the ratio
     rounded to three places in Table 1?
   sources:
   - kind: statute
     citation: 26 U.S.C. 163(h)(3)
-    url: null
+    url: https://www.law.cornell.edu/uscode/text/26/163#h_3
   - kind: worksheet
     citation: 2025 Pub. 936 Table 1, line 14
-    url: null
+    url: https://www.irs.gov/pub/irs-prior/p936--2025.pdf#page=14
+  - kind: worksheet
+    citation: 2017 Pub. 936 Table 1, line 11, which the 2025 Hawaii N-11 instructions (line 21c) direct filers to
+    url: https://www.irs.gov/pub/irs-prior/p936--2017.pdf#page=11
   readings:
     statute: Section 163(h)(3) does not specify rounding of the deductible-interest ratio.
-    other: Publication 936 Table 1 line 14 rounds the ratio to three decimal places.
-  example: A 2016 joint example gives $26,666.67 using the exact ratio versus $26,680 using the rounded ratio.
+    other: Publication 936 Table 1 (2025 line 14; 2017 line 11) rounds the ratio to three decimal places.
+  example: A 2025 joint return with $40,000 of interest on $1,500,000 of 2016 debt gives $26,666.67 using the exact
+    ratio versus $26,680 using the ratio rounded to .667.
   pe_us:
     follows: unknown
-    code: []
+    code:
+    - policyengine_us/variables/household/expense/tax_unit/mortgage_interest_structure.py
+    - policyengine_us/variables/gov/states/al/tax/income/deductions/itemized/al_investment_interest.py
+    - policyengine_us/variables/gov/states/nc/tax/income/deductions/nc_mortgage_and_property_tax_before_limitation.py
+    - policyengine_us/variables/gov/states/hi/tax/income/deductions/itemized/hi_mortgage_interest_deduction.py
     prs:
     - https://github.com/PolicyEngine/policyengine-us/pull/10274
   state: unreviewed
-  note: 'This is a disputed worksheet gap-fill; PE-US uses the exact ratio, and the supplied worked example is for
-    2016 rather than the cited 2025 worksheet. Code not yet on main: deductible_mortgage_interest.'
+  note: 'PE-US follows two conventions, so follows stays unknown until one is picked. The federal deduction
+    (deductible_mortgage_interest_tax_unit) uses the exact ratio, and Alabama and North Carolina read that federal
+    amount. Hawaii (hi_mortgage_interest_deduction) follows the 2017 worksheet as a gap-fill, rounding line 11 to
+    three places, and floors the result at the federal deduction, a PE safeguard that binds only when the rounded
+    share falls below the exact federal share. Settling the federal reading (rulespec-us#1413) and using it for
+    both would make that floor unnecessary.'
 - id: us:niit-excess-business-loss-addback
   program: income-tax
   years: