It may be a bug in the program, or at least a failure to adjust that sub routine for the new SALT cap. The simplest thing to do is to remove the tax refund from the program. I believe that when you enter the state and local refund section, even though TurboTax picks up the information from last year‘s return, it asks you if that is correct. I think you should be able to say no and change the amount to zero.
(This is not a new procedure, although the revenue ruling re-states it in light of the new SALT limitation. The tax benefit rule has always been used to calculate whether a refund of a previous deduction is taxable. It seems that the section of the program may not be calculating it correctly.)
If you would be willing to help investigate the situation, go to the help menu and select “send file to agent.” This uploads an anonymized version of your file to tech-support and gives you a token number. If you post the token number here, I can forward it for review as a bug.
