There is not a specific amount of tax that will apply to the rollover IRA containing $20k. However, since that $20k is presumably pre-tax contributions and your newly created Traditional IRA account funded with $7K is non-deductible, after-tax contributions, the total value of all of your Traditional IRA accounts ($20K + $7K + $1K) will be taken into account when calculating the amount that will be taxable if you convert the newly created IRA to a Roth IRA.
That is what the pro-rata rule is trying to say. Using the formula in the article that you linked, your situation would be this:
$7K / $28K = non-taxable percentage (based on my assumption that the $7K is a non-deductible contribution)
The rollover IRA will still be there and it will still have zero basis (if it was all pre-tax contributions) after the Roth IRA conversion.
@ccnan
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