It is exactly as you describe!

You were correct. It was indeed an improperly done piece of kick flashing at the very bottom near the gutter

No diverter is present there at all. There’s a bunch of things going on here that could be causing this problem and I think it would be best to address all of them at once:

• No diverter
• No drip edge present along gutter, and I’ve seen water drip from soffit vents. It’s possible water is coming into the damaged area from where the soffit meets the wall
• Vinyl siding was installed over original wood composite. It’s questionable whether the step flashing is effective given the setup
• Gutter potentially too small - I have to clean it out like 6 times a year even with gutter guards over most of it

Good point on the rafter tail. I’ll look in the attic in that area to confirm.

Yeah there’s flashing above there and it’s possible this is the source of the leak.

I’m afraid what I’m going to have to do is take all the siding off above here to expose the flashing and inspect it and repair. Then to remove and fix the rot I’m gonna have to take everything apart to get into that area behind the soffit - remove the gutter, fascia, etc to gain proper access