How the two systems interact

Federal and state deductions are not one-size-fits-all. You typically complete the federal return first because many states use federal figures—especially adjusted gross income (AGI) or federal taxable income—as the base for their own calculations. From that federal starting point, each state can:

  • Conform to federal rules (adopt them as written),
  • Partially conform (follow some rules but add or subtract specific items), or
  • Decouple entirely and define taxable income differently.

That means a deduction allowed on your federal return might be limited or expanded on your state return—and vice versa.

(Authoritative overview: IRS, Publication 17 and state tax authority websites.)

Common differences and real-world examples

  • SALT (state and local tax) limit: Under federal law (since the 2017 Tax Cuts and Jobs Act) the federal itemized deduction for state and local taxes is capped at $10,000 for most taxpayers; some states do not adopt that cap and let taxpayers claim a larger or different state deduction. This is an example where federal and state outcomes diverge.

  • Standard vs. itemized: You can claim the federal standard deduction and still itemize on your state return if the state allows different methods. See our guide on the Standard Deduction and how states treat itemizing.

  • Mortgage interest and charitable gifts: The IRS allows mortgage interest and charitable contributions under federal rules, but states may cap amounts, disallow certain federal-only adjustments, or require separate documentation.

  • Business and pass-through rules: States may not follow federal Qualified Business Income (QBI) rules or Section 162 treatments exactly — which affects both business owners and partners/shareholders.

In my practice I often see taxpayers assume a federal deduction automatically applies at the state level; that mistake can lead to underpayment or missed credits.

Practical, step-by-step approach

  1. Prepare the federal return first. Many states use federal AGI or taxable income as the starting point, so completing the federal return reduces guesswork.
  2. Review state conformity. Check whether your state “conforms” to recent federal law changes for the tax year you’re filing. States update conformity rules at different times and by different methods (rolling vs. static conformity).
  3. Recompute state adjustments. Add back or subtract items per your state’s rules (for example, differences in retirement income treatment, SALT conformity, or mortgage interest limits).
  4. Decide standard vs. itemize by return. Don’t assume the federal choice applies to the state; run both calculations if needed.
  5. Keep documentation. If a state requires additional forms or statement attachments when you deviate from federal calculations, keep copies of receipts and worksheets.

For more detail on state conformity and how it changes deductions, see our article: How State Conformity to Federal Law Affects Your Deductions. If you’re weighing whether to itemize in the current tax year, our piece on Choosing Between Itemizing and the Standard Deduction in 2025 walks through the numbers.

When differences matter most

  • You have large state and local taxes, mortgage interest, or medical expenses.
  • You’re a high-income earner with potential SALT exposure.
  • You moved between states during the tax year or earned income in multiple states.
  • You run a small business or receive passthrough income taxed differently across jurisdictions.

Common mistakes to avoid

  • Assuming federal deductions automatically carry to state returns.
  • Failing to check whether your state has enacted recent conformity changes for the filing year.
  • Using the same documentation rules for both returns without checking state-specific requirements.

Professional tips

  • Check your state’s tax agency website for a conformity statement before filing.
  • Run both standard and itemized calculations for federal and state returns; the right choice can differ.
  • If you owe tax after reconciling federal to state, consider estimated payments or withholding adjustments to avoid penalties.

Sources and further reading

Professional disclaimer: This article is educational and not individualized tax advice. Tax laws change and states vary—consult a CPA or tax attorney for guidance on your specific returns.