The IRS provides tables and a calculator for use in determining the standard sales tax deduction amount (used primarily for states that don't have an income tax). The instructions state that you can include in your total income: "Nontaxable part of IRA, pension, or annuity distributions (do not include rollovers)".
The question is - can you include in this number funds from a 1035 tax exchange? My tax software thinks you can. In 2013, I did a tax-free exchange of funds from the cash value in an insurance policy in order to purchase a new insurance policy. I received a 1099-R for the exchange which reported the amount of the exchange in the Gross distribution (box 1), zero in box 2a and a distribution code of "6" in box 7. The IRA/SEP/SIMPLE box was unchecked. The tax software dutifully included the box 1 amount in the calculation for my sales tax deduction, and I'm just wondering if this is correct. It seems to fit the first part of the rule as a non-taxable annuity distribution, but it also seems to be a rollover, which would be excluded.