Here is what I posted to another reply (just in case the entire thread is not visible):

Yes, the MT starts with the Fed AGI and then calculates the MT taxable income portion (PY allocation of Schedule net income plus PY allocation of dividends and income) by dividing that amount by the Fed AGI (modified minimally by a MT deduction.

Example:

Fed AGI - 135,808 (this is net of full deduction of SE tax deduction, SEP IRA deduction and SE health deduction.

MT AGI - 134,991 (adjusted minimally for taxpayers over 65 and MT tax-exempt interest)

MT source income is the PY residency allocation of Sch C net income and interest/dividend income which totals 75,549.  Therefore, making the PY resident ratio 55.96% (75,549/134,991)

It would seem that the proper calculation would be the PY income of 75,549 less the PY allocation of the three deductions which would reduce it to 56,557 thus making the PY resident ratio 41.89%, thereby resulting in less MT tax liability.