The unrecoverable basis would normally be treated as a miscellaneous deduction subject to the 2%-of-AGI floor. However, the Tax Cuts and Jobs Act of 2017 suspended miscellaneous deductions subject to the 2%-of-AGI floor until 2026.
Since this deduction was only available if you had a zero balance in traditional IRAs at year end, you might consider or converting less than the full amount in the IRA to preserve the remaining basis until you can either apply it to a future traditional IRA distribution, say, after rolling money over from a 401(k) to a traditional IRA, or until you can claim the deduction in 2026 or later.
Investments in an IRA are not treated as capital investments.
When using the back-door strategy, it's best to keep the funds in an investment that cannot lose value and convert immediately. That avoids the situation that you are now facing.
