Capital gains are included in Adjusted Gross Income. The confusing terminology isn't really TT's fault; that's how it's written on the tax forms.
The tax calculation will apply the correct rates to the correct types of income, and will not count Capital Gains as income twice. You can trust that Turbo Tax knows how to do this.
Another similar confusing one is "Ordinary Dividends" and "Qualified Dividends". Again, one includes the other, even though the names sound like they should be separate. And again, the tax calculation separates them out before applying the correct rates.
