Form 8606 line 18 is correct in showing the taxable amount of $75,000 (from your example) because it is only considering the amount that was reported to be converted to the Roth IRA, which was $75,000. Of that $75,000 that was converted, how much was taxable -- all of it, or $75,000.
Since the remaining $25,000 was not actually converted to the Roth IRA, the Form 8606 does not consider it as part of the calculation. It is only looking at the amount that was converted, not the amount that was distributed from the Traditional IRA.
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