Your federal AGI only includes $6 in interest. $31,339 was not included in your federal AGI. Of the amount not included in Federal AGI, $16,762 was added back to Michigan AGI. There is a worksheet in the Instructions for Schedule 1 that shows how the amount on Line 28 is calculated. It is on page 17 of the link above.
The maximum deduction on Line 28 is $28,548 less the amount of your Retirement & Pension Subtraction on Schedule 1, Line 27, which is $15,681. $28,548 - $15,681 = $12,867 << That is your maximum deduction allowed on Line 28 of Schedule 1.
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