Moving - should I rent out my current house or sell it?

[Krishan Sharma]

My wife and I are moving to a house. We have taken a mortgage out for $872,000 at 4.125% with a PITI payment of $5,625.11. We also currently own a townhome with $442,000 at 3.625% left on the mortgage and PITI payments of about $2,800. The townhome (according to redfin) is currently estimated at $1,009,000.

We have been debating renting out the townhouse since it is relatively cheap. We could probably get around $3,300-$3,500/mo if we listed it as a rental. On the other hand, we would start to lose our $500,000 exemption (we are currently at about $422,000 in profit using the redfin estimate). We have been living in the house for 3 years 7 months.

I'm not sure what to do here. Take the possibly $400k+ and run or turn the townhouse into a rental and deal with the taxes. Any advice/insight would be greatly appreciated. Thanks!