Selling old primary, what's next? Please advise.

[Serena Sun]

hi Everyone, 

I have asked for advise before, and got a lot of valuable suggestion. I followed the advise and result turn out to be great! Please share your options again, I really appreciate it for your time.

Background: 

I rented out my old primary home Mar 2015 (Ross hill, Kirkland, WA). I am considering to sell it in Summer 2017. The house is worth $810K on Zillow, the remaining loan balance is $290K, current rent $2700/month. The proceeds should be about $450K after paying off the debt and expenses. My plan is to use the proceed to buy a cheaper property with cash (about $400K, as rental), then refinance it.

Two reasons that I want to sell: 

1. There is the $500K capital gain tax free (for couple) if I sell as my primary within three years. So the tax saving will be over $100K.

2. I feel the return on the property is too low, I should be able to find a house for $550K and rent for the same amount.

Question:

1: Do you agree that I should sell the house to take advantage of the tax benefit?

2: Will it be better to have tenant live till the house gets sold? (The lease ends July 2017) Or is it better to let him move out earlier, he said he would prefer to move earlier because it's easier to find house in Spring.
3. What would you do with the proceed? How about buy a duplex? Please share your option how to use the money effectively and wisely. 

Thanks for your advise.

Best wishes

Serena