You have to specify the Exclude in absolute path and change the exclude wildcard to include subdirectory
If you use an absolute path for Include, you must use an absolute path for Exclude. If you use a relative path for Include, you must use a relative path for both.
<PropertyGroup>
<RootFolder>c:\temp</RootFolder>
<ExcludeFilter>**\*.tmp</ExcludeFilter>
<StagingDirectory>staging</StagingDirectory>
</PropertyGroup>
<ItemGroup>
<InputFile Include="MyFile.txt" />
</ItemGroup>
<Target Name="Build">
<ReadLinesFromFile File="@(InputFile)">
<Output ItemName="AllFolders" TaskParameter="Lines" />
</ReadLinesFromFile>
<CreateItem Include="$(RootFolder)\%(AllFolders.RelativeDir)**"
Exclude="$(RootFolder)\%(AllFolders.RelativeDir)$(ExcludeFilter)">
<Output ItemName="AllFiles" TaskParameter="Include" />
</CreateItem>
<Copy SourceFiles="@(AllFiles)"
DestinationFolder="$(StagingDirectory)\%(RecursiveDir)"/>
</Target>
Multiple excludes and absolute path
If you want to exclude multiple items, there is no clean way when you are using absolute path, but you could do with Remove.
First way : Using Remove and item
<PropertyGroup>
<RootFolder>c:\temp</RootFolder>
</PropertyGroup>
<ItemGroup>
<InputFile Include="MyFile.txt" />
<!-- Exclude are defined here -->
<ExcludeFilters Include="$(RootFolder)\**\*.tmp"/>
<ExcludeFilters Include="$(RootFolder)\**\*.bmp"/>
</ItemGroup>
<Target Name="Build">
<ReadLinesFromFile File="@(InputFile)">
<Output ItemName="AllFolders" TaskParameter="Lines" />
</ReadLinesFromFile>
<CreateItem Include="$(RootFolder)\%(AllFolders.RelativeDir)**">
<Output ItemName="AllFiles" TaskParameter="Include" />
</CreateItem>
<!-- Removing the wrong extension in item -->
<ItemGroup>
<AllFiles Remove="@(ExcludeFilters)"/>
</ItemGroup>
<Copy SourceFiles="@(AllFiles)"
DestinationFolder="$(StagingDirectory)\%(RecursiveDir)"/>
</Target>
Second way : Using Remove and condition
<Target Name="Build">
<ReadLinesFromFile File="@(InputFile)">
<Output ItemName="AllFolders" TaskParameter="Lines" />
</ReadLinesFromFile>
<CreateItem Include="$(RootFolder)\%(AllFolders.RelativeDir)**">
<Output ItemName="AllFiles" TaskParameter="Include" />
</CreateItem>
<!-- Removing the wrong extension in item -->
<ItemGroup>
<AllFiles Remove="@(AllFiles)" Condition="'%(Extension)' == '.tmp'"/>
<AllFiles Remove="@(AllFiles)" Condition="'%(Extension)' == '.bmp'"/>
</ItemGroup>
<Copy SourceFiles="@(AllFiles)"
DestinationFolder="$(StagingDirectory)\%(RecursiveDir)"/>
</Target>