I tried this in a test return and TurboTax allowed the $500,000 exclusion. I suspect that you might have answered a question incorrectly. Go through the Sale of Home interview again and check your answers. Read each question carefully. The wording can be confusing. Pay particular attention to the Additional Exclusion for Widow(er)s screen.
If you still don't get the $500,000 exclusion, contact a TurboTax Live tax expert on Monday and go through it with the expert. The tax expert can see your tax return (with your permission) and see what's going on. We here in the community cannot see your return.
