So... if I take a picture of a copyrighted photo, then upload that picture to Instagram, Instagram subsequently owns the copyright?
I find that dubious, at best.
No, you keep owenership of the picture you took, in the license agreement you agreed to with instagram, you "grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service", but you don't transfer copyright to them.
The picture you took however, also has a different creative work (the copyrighted photo you took a photo) in it. This - separate - copyright is not yours to license, and does not become licensed to Instagram in any form.
If this picture comprises almost all of your picture, it is unlikely that your picture (of the picture) meets the threshold of originality required to be eligible in the first place. If the copyrighted picture is a minor part of your picture, (for example, a picture of a room where the copyrighted picture is somewhere on a table), the use of the original work would be considered De Minimis, and would not have any influence on the copyright.
final question then: is instagram able to sell that picture? No, not in any normal shape or form, at least not while the copyrighted picture is the main part of your picture. If they would carefully remove that picture from your picture however, they would. So basically, it comes down to common sense. Well, apart from the part where you agreed to that license with Instagram. That's not common sense at all.