I refinanced my primary residence in 2020 and used the money to pay off a 2nd home. Why am I being allow to deduct more for interest than is shown on the1098 ?

Double check your entries for typos.  Although, CA law does allow you to take a credit a mortgage interest deduction for loans not used to buy, build or substantially improve your home, it does not give you more than you paid generally.  This is likely an entry error.  Go back through to the federal section and click on Deductions and Credits, then edit next to your Home Mortgage Interest.

The one exception to that would be if you "reduced your federal mortgage interest deduction by the amount of your mortgage interest credit (from federal form 8396, Mortgage Interest Credit), increase your CA itemized deductions by the same amount"

So if your mortgage interest for your federal return was reduced, it is possible that this is increasing your CA itemized deductions.