Taxpayer X (Married Filing Jointly) has an AGI of $244k. This income includes W-2, 1099-R, 8949 sale of a second residence, and social security income.

When I am going through the tax return, I am determining if a traditional IRA is fully deductible. The husband participated in a retirement plan at work in 2020, so that limits the spouse's contribution based on this table:

https://www.fidelity.com/retirement-ira/contribution-limits-deadlines

What's very odd is when I enter the $7k traditional IRA contribution for the spouse, it is not coming through on line 10 as an adjustment to income in ProSeries, which I expect, since the taxpayer is above the MAGI.

However, it appears to be reducing the 1099-R IRA distributions that I am have on line 4a of the 1040.

Some of the 1099-R received have Code P, "Return of Contribution Taxable in 2019."

Is it possible that an IRA contribution can reduce/offset certain IRA distributions? In other words, the taxpayer is not getting the more conventional IRA deduction but is instead being allowed (for some reason I still don't understand) to offset IRA distributions that contain a certain code.

ProSeries is reducing the overall tax liability when I enter the IRA contribution despite being over the income limit.

The other thought is the consideration of the IRA with regards to the income type, meaning MAGI needs to account for sale of the home (i.e. it is not part of the income limit since it is not regular income).