The basis tracking within TurboTax is only for your own IRAs. You must track the basis in the inherited IRA yourself and calculate the taxable amount of any distributions from the inherited IRA yourself, generally by preparing a separate Form 8606 outside of TurboTax. When you enter the code 4 Form 1099-R reporting the distribution from the inherited traditional IRA, TurboTax will simply ask you to enter the taxable amount that you yourself calculate.
