Why would I be required to pay capital gains on a home I owned and lived in for 17 years?

There is an exclusion of $250,000 or $500,000. If you are not getting it, double check your entries. Anything over your exclusion is taxable.

If you meet the qualifications to use the exclusion, any gain over that amount is a capital gain. The exclusions are $250,000 for single, and $500,000 for married filing jointly. See the rules below.

Does Your Home Sale Qualify for Maximum Exclusion

The tax code recognizes the importance of home ownership by providing certain tax breaks when you sell your home. To qualify for these breaks, your home must meet the Eligibility Test , which is explained later.

How your sale qualifies.   Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.

• You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
• You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
• You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.

because the law requires paying capital gains tax if the gain is more than $500,000 (joint return) or $250,000 (single return); doesn't matter how long you lived in it if the gain exceeds the amount listed, the capital gains tax is owed.