"If the “outstanding recharacterization” gets shown as the value of the IRA at year end, should it include the earnings that contribution made?"
I was intentionally ambiguous about that since I'm not sure. As you indicated, in this case the amount recharacterized is $1,000 but the amount transferred was $1,114. I doubt that the IRS would care much about which value you choose to enter since the difference between the two doesn't affect the calculation too much. I would probably go with $1,114. Since she will convert all traditional IRA funds in 2025, whatever basis is carried over from line 14 of the 2024 Form 8606 to line 2 of the 2025 Form 8606 will get entirely applied to the 2025 Roth conversions.
If the entire $1,000 is not being treated as nondeductible, that implies that some amount is being reported on Schedule 1 line 20 as deductible. TurboTax offers you the option of treating deductible amounts as nondeductible which would move the amount from Schedule 1 line 20 and add it to the amount already on Form 8606 line 1.
Under the circumstances, I suspect that TurboTax will use Worksheet 1-1 from IRS Pub 590-B instead of doing the calculation entirely on Form 8606. This would be evidenced by TurboTax placing asterisks next to lines 13 and 15 of Form 8606.
