I don't know what "the UTMA income deduction" is. Where do you see that term? There is no tax deduction for money spent from a UTMA account or for income earned in a UTMA account.
You don't seem to be making a clear distinction between income earned in the UTMA account and money spent from the UTMA account for the child's benefit. Any interest, dividends, or capital gains earned from investments held in the child's UTMA account should stay in the UTMA account. They are income to the child. If the child files a separate tax return the investment income is taxed at the child's rate up to the kiddie tax threshold, and at the parents' rate above that.
Money that is taken out of the UTMA account and spent is not income to either the parents or the child, so it is not reported on either tax return. There is no tax deduction for money taken out of the UTMA account, since it does not appear on a tax return to begin with. It is simply not reported. It makes no difference whether the money taken out of the UTMA account is from investment income or from the money in the account. And as far as taxes are concerned, it makes no difference what the money that was taken out of the UTMA account is spent on.
