Its technically considered income, which is why it shows up on the income summary pages in TurboTax. But, it is NOT taxable income, so it does not affect your income numbers on the tax return (AGI and taxable income).
You can view the distinction best by looking directly at a copy of Form 1040. Review Line 4a and 4b and the distinction the IRS makes between the income and taxable income lines. Only 16b - taxable income actually gets used in the calculations. But, the whole rollover amount will show on Line 4a.
