If Kristen reduced her Federal mortgage interest deduction by $500, how much could she increase her California itemized deductions for home mortgage interest?

When Kristen reduces her Federal mortgage interest deduction by $500, this reduction directly impacts her California itemized deductions. California typically follows the federal guidelines for itemized deductions, including those related to home mortgage interest.

The deduction for mortgage interest is based on the amount of interest paid on qualifying mortgages, and both federal and state tax laws allow taxpayers to deduct this interest as part of their itemized deductions. By lowering her federal deduction by $500, it means that she may have the opportunity to claim a similar increase in her California deductions—provided the interest remains deductible under both federal and California tax laws.

Since the reduction is $500, Kristen can increase her California itemized deductions by the same amount. California's approach generally allows for an increase in state itemized deductions corresponding to changes made on the federal level, assuming the total mortgage interest paid does not exceed the limits set forth by state law. Thus, the increase in her California itemized deductions for home mortgage interest would also be $500, which confirms that the correct answer is indeed $500.