Assuming there's a big gain on the first house, you have a few years before the exclusion goes away. Said differently, you may not pay tax on the gain if you sell within the next 3 years, but if you wait until later you will be stuck with paying tax on the entirety of the gain. I'd make sure you consider that when you run the numbers.

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he will have to pay cap gains if he sells

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...unless he does a 1031 Exchange.

Just went through this.....short answer, it's complicated and depends on a lot of factors.

I'll kind of argue the flip side of the coin vs. Red Pear and others.....but taking that $175-200K and paying down a new 6%+ note would also be beneficial. Or investing it in a guaranteed 5% return....

Also, $1,200-1,300 over your mortgage is kind of irrelevant. What are taxes, insurance, listing fees, etc. For reference, we rented ours for $1,800 more than our mortgage. We estimate taxes going to $800/month after losing homestead, insurance is a little under $200/month. Listing fee is one month rent (comes out to almost $300/month). We pay for yard maintenance so there is no worry of it going downhill, another $100/month. Are you paying a property manager? We're still in the green, but at $1,200 over our mortgage we wouldn't be.

All that said, we decided to rent. I wanted to sell, my wife wanted to rent, so here we are. Just giving the other side of the argument as the current high rates don't automatically make keeping a low rate note the no brainer a lot of people argue, at least not in my opinion.