Get your taxes done using TurboTax

You will have a total basis of $7,000 listed on line 3 of Form 8606. The $5,000 2021 contribution will be entered as a traditional IRA contribution and when TurboTax asks you will enter the prior-year basis of $2,000 (from the 2020 recharacterization). Please review the steps below:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the “$5,000” you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had nondeductible contributions in 2020 from the recharacterization.
10. You will enter “$2,000” as the basis in the Traditional IRA from prior years.
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter “$5,000”.

Then you will enter your 1099-R for the $7,000 conversion:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?"
12. You will see a screen that shows your prior-year basis of $2,000 click “continue”
13. On the next screen “Tell us the value of your traditional IRA” you will enter the value of all the traditional IRA, SEP, and SIMPLE IRAs that your wife has.

After entering all this TurboTax will calculate your remaining basis and this basis will show up on line 14 of Form 8606. You will enter this basis next year on your 2022 tax return when TurboTax asks about your prior-year basis before 2022.

@dhuynh44