In that case I think you may be right - say, if our taxable income in California is $125K, our state taxes owed would be $11,625 (9.3%). Could that whole amount then be deducted on our federal return? The 9.3% is the highest rate, so the state taxes owed is not quite that high. There is an example in the CA tax booklet, MFJ with income after CA MFJ std. deduction = $125,000 (That might not be too different from your married situation since the MFJ std deduction is $6820) The state taxes in the example end up being $7367.70Hohum
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