Yeah, I don't think this is a close call, not by a long stretch, and there's an absolutely definitive answer.
If you're married and filing a joint return (and meet the qualifications of course), then you're entitled to the $500,000 exclusion of gain (despite how the 1099-S reports it).
See https://www.law.cornell.edu/uscode/text/26/121
(2) Special rules for joint returns
In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—
A) $500,000 Limitation for certain joint returns Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—
(i) either spouse meets the ownership requirements of subsection (a) with respect to such property;
(ii) both spouses meet the use requirements of subsection (a) with respect to such property; and
(iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).
