It turns out that if your total income is between 100k and 150k the portion of losses reported on Schedule E changes on a sliding scale from 100% at 100k and 0% at 150k. Adding the rollover caused the total income to increase such that it resulted in a lower deduction amount from Schedule E, which made it
appear like the rollover was being taxed at a higher rate.
In the particular case the numbers worked out just such that the change in deduction from schedule E was ~50% of the roll-over, thus making it look like it was taxed like a distribution...
