I don't think it makes sense, to override the already covered capital gain by the exclusion.
Going over the TT worksheet (Part IV, Exclusion and Taxable Gain):
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30 Depreciation allowed or allowable on the property for periods after May 6, 1997. If none, enter -0- 30
31 Subtract ln 30 from line 7 above (not less than -0-)
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So TT is trying to reduce the capital gain by the depreciation amount (X) on line 31.
But then it puts taxes back on the depr. amount X:
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38 Taxable gain. Subtract line 37 from line 7 of Part 1. Report any gain on
Sch D. If the amount on line 30 of this worksheet is more than zero,
complete line 39.
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So basically, it is the second iteration of computing the taxes on the capital gain and making the exclusion irrelevant. The exclusion, if high enough to remove any capital gain, why the capital gain shows up again?
I think it is a grey area,( to say the least). The CPAs in TT are not competent to answer questions like that. The result is that most people land up taking a more conservative path.
