Yes, I have the taxable compensation requirement covered. I may have stumbled across the answer to this. When I went back to the IRA contributions summary in TurboTax it showed a total of $14000, not the $7000 I thought I was indicating in the entry screens. It seems TurboTax understands the "I contributed $7000 to a traditional IRA" and the "I recharacterized my $7000 Roth contribution to my traditional IRA" as separate entries and not two sides of the same action. By stating I did not contribute to my traditional IRA and using only the recharacterization of my Roth contribution to my traditional IRA I get the response from TurboTax that I expected, that my contribution is non-deductible.
I would love it if someone from TurboTax can confirm this is the correct approach for my situation. I feel like it's a little non-intuitive that I should state I have not contributed to my traditional IRA when in fact my recharacterized contribution is doing exactly that. But, I guess it is being reported one way or another...
