Modric came off the bench to net a stunning strike from the edge of the box late in the second half to secure a 1-0 home win over Sevilla in a LaLiga clash on Sunday.
The 38-year-old, who is out of contract this summer, has made 21 league appearances for Real this season, starting just 11 of those games.
"He scored a great goal that allowed us to have another three points on the table. He shows everyone how hard it is for me to leave him on the bench," Ancelotti told reporters.
"Not just for the goal he scored, but how he trains. He is an example to the whole squad. It's very complicated to leave him on the bench."
Asked about the Modric's contract, Ancelotti said: "It's complicated. It's hard to manage. I was once a player and went through it in my last year as a professional player.
"I would understand if Modric was a little bit upset if he is not playing. Everyone thinks he is at the end of his career, but I think he doesn't agree with that. He looks to be well, fresh. He's got legs. He doesn't seem like he is 38."
League-leaders Real next travel to ninth-placed Valencia for a league game on Saturday.
