Keep or sell Hawaii home to avoid capital gains/1031?

[Joseph Getgen]

My wife and I bought our first home in Hawaii in 2012 at the bottom of the market. We lived in it and rehabbed for the first five years. After we realized that it had increased significantly in value, we decided to use our equity as leverage to buy another home. We rent out the initial 2012 purchase and have a small cash flow, but now the market is hot and the house has almost doubled in value. From what I understand about capital gains, as long as you live in the house 2 out of the last 5 years from the point of sale, you can avoid paying capital gains without using a 1031 exchange. Is it smarter to unload the house now and invest in something with more cash flow in a down market, or hold onto it and keep it as a part of the portfolio?