TurboTax is incapable of tracking basis in inherited IRAs and cannot calculate the taxable amount of distributions from inherited IRAs. As you found, when there is basis in an inherited traditional IRA, the taxable amount must be determined using a separate Form 8606 outside of TurboTax and then just the taxable amount entered into TurboTax when TurboTax asks for it. TurboTax then replaces the amount originally reported in box 2a of TurboTax's 1099-R form with the amount entered in response to TurboTax's question. The Form 8606 created outside of TurboTax should then be mailed along with the rest of the tax return. The IRS instructions for Form 8606 say that all Forms 8606 should be retained in the individual's records essentially forever.
The basis in the inherited traditional IRA should be entered nowhere in TurboTax. It is not permitted to be combined with any basis your daughter might have in her own traditional IRAs.
