Roth Conversion with non-deductible basis

[PaulK19]

Toward the end of 2021 it became apparent that we would have a business loss that would result in negative taxable income.  I did a ROTH conversion for the approximate amount so as to bring income and taxation to close to zero $.  I had a non-deductible basis in my traditional IRA of about slightly more than half the amount I converted.  I fully intended the full amount of the conversion to be taxable.

I just noticed that the only amount included in my taxable income was the amount of the conversion less the amount of my basis.

My question is whether one is required to expend the basis or if it is OK to not use the basis and, in effect, to increase the tax ability of the converted funds.  I know there are pro-rata rules that limit the amount of basis that can be claimed but this seems to be the opposite situation.

Thanks for your help.

[fanfare]

if you wish to convert tax free to Roth, your entire value of all your IRAs must be no more than your basis which is the non-deductible part,

Otherwise, it cannot be 100% tax free nor 100% taxable because a Traditional IRA distribution or conversion always has a basis fractional part and a taxable fractional part as calculated on Form 8606.

You must use Form 8606 to arrive at your new prior years basis.

@PaulK19 

[DanaB27]

How much of your basis is used depends on how much was left in your traditional IRA (balance on December 31, 2022) and is calculated on Form 8606. As fanfare mentions, you cannot choose to only use the taxable part or only use the nontaxable part, because each distribution (assuming you have earnings in the account) will have a taxable and nontaxable part because of the pro-rata rule.