You seem to understand the California (CA) rules based on the instructions you added to your post. You can take the credit if you calculate a better advantage. Watch the screens as you go through the CA return to be sure you take the appropriate amount. You definitely are not allowed to take both on either the federal or the CA return. The following seems quite clear.
- To help you determine whether to take a credit or deduction, see the Repayment section of federal Pub. 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations
As indicated by our tax expert you basically determine the correct tax on CA to see if a credit is reasonable and more advantageous:
- (#4 above) If you still believe you are owed a specific credit amount based on CA's version of the IRC 1341 credit, it is typically handled by recomputing the tax for the year the income was included and taking the difference as a reduction in current year tax.
The key is they may review to determine if your calculations are accurate.
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