To sell or not to sell?

[Josh Simpson]

Been a Pro Member for a couple months now but haven't really utilized the discussion boards as much as I should have until today my wife ran into a conundrum. Here is our delima

We bought a home 2 1/2 years ago from an original owner. 1955 built brick rancher that happened to be 4 doors down for our home at the time. We purchased the home for $172,000 and have since with downpayment and renovations come out of pocket roughly $25,000. We currently owe around $190,000 on the note (we did renovation loan) and had always intended on keeping as a rental property like our 3 other homes. Our current mortgage payment is $1,360 a month and we could rent the house at for $1,500. However since we purchased the home, prices in our area have risen pretty quickly and there is a major redevelopment project just getting underway about 1/2 away. We could probably sell the home around $290,000 and walk away with something in the ballpark of $80,000. My understanding of Capital Gains from the forums and podcast is that I wouldn't have to pay Capital Gains since I have lived there as a primary residence for the last 2 1/2 years?!

With the potential of walking away with so much profit, we are debating whether it is short sided to change our plan from keeping it a rental or is it opportunistic to try to take advantage of a hot market with low inventory. 

Thanks for any advice or recommendations BP!