You don't need to enter Form 1099-G in the 1099-G section. Include the amount on the form as income for your rental property.
The IRS will be looking for the income reported on the form. As long as it is included in your tax return, you will be covered.
If you would happen to get a letter asking about the 1099-G, just respond and let them know it was entered with the rental income. This should be no different than a business getting a 1099-Misc, it is expected that the income on that 1099-Misc is already included in the income. If the income is less than the 1099-Misc, then it would raise a flag, if not, then all is well.
If you report it as a taxable grant instead of rental income, your rental income would be lower, which is inaccurate. There is no way to directly link the 1099-G to Schedule E at this point.
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