Thank you @jtax!
This section of the return makes my head hurt as well!
As you would suspect, excluding depreciation from line 2 leads to a higher credit, as its inclusion increases line 6 to exceed line 1a. Depreciation was included in Schedule B for the reason (i.e. allowed, allowable distinction) you also highlighted. I found another discussion on this topic since posting this here: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/gross-income-on-forei...
In that thread, referring to depreciation, the Turbotax expert stated "In viewing the form 1116, there is no separate entry for depreciation. In fact if you look at Part 1 line 2, all of the expenses definitely related to income are the expenses that the foreign country used to reduce the income for determining the foreign taxes you owe. If it wasn't included as an an expense, then it can't be claimed."
Based on this I intend to exclude the depreciation on the 1116 line 2 unless you strongly suggest otherwise.
