What to do with my equity?

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Hi, I have $1mm in equity in my residence. I owe about $600K and pay about $3400/mo in mortgage. Taxes are low since I have lived here for over 8 years. If I move to a like house, cost is about $1.2mm and then my property taxes are roughly $10K/year (compare to $4K/yr now). BUT I would only be fianancing $300K or so (closing costs etc.) Since I can take up to $500K on captial gains (I am married) I would be paying taxes on the balance? Not sure of how this works. Any advice would be appreciated. Any suggestions on what to do with my equity would also be appreciated.

Thanks,