Thank you again @jtax
Referring to your statement "Assuming there is a foreign capital gain tax, the 901 US income from foreign sources would be the US Gain figure which would be higher than the foreign rule calculation by the $16k accumulated deduction. This would result in a larger numerator in the 904 limitation calculation and would allow more the foreign tax in year of sale (and any carryforwards) to be used." we are on the same page on this. However, you response stops one step too short in addressing my question regarding the expiration of FTCs. Say the property was not sold within 10 years after FTC started accumulating but after 30 years. In that scenario all the credits from the 20-year period would have expired.
My point is the exclusion of depreciation from Line 2,1116 addresses this problem by allowing part of these FTCs apply in the year they become available (so that they don't have to expire without getting used). This balances out at the time of the sale of the property with the less FTC remaining available at that time to use against the US taxes including depreciation recapture.
Exclusion of depreciation from Schedule E would not be a good idea at all, as this would lead to a very high additional tax burden at the time of recapture even though one did not obtain any benefit from depreciation.
