cascading dropdowns and select for parent item is grayed out when using add new on child form

I have an app with cascading dropdowns and select for parent item is grayed out when using the add new on child form. 

The behaver I am looking for is to add a new item in the child form that is linked to the parent form. I have cascading dropdowns working if I start with the parent form downwards through the forms.

Working - Item 1>>list 1 based on item 1>>List 2 based on list 1

I would like to add an item to list 1 and have it linked to the Item 1 form. but when using the add new button the Item 1 list is grayed out.