Capita gains are not excluded from your tax return. They are just taxed at a lower rate than your ordinary income (in you case, that tax rate is 0%). So, TurboTax is doing it correctly to include your capital gains on form 1040 and in calculating your taxable income. Your taxable income (line 15 of form 1040) will include the capital gain. But, rather than a straight look up, in the tax table, a complicated calculation will be made on the "Qualified Dividends and Capital Gains Worksheet". For more complex situations, the "Schedule D worksheet" will be used instead.
