I was discussing this today with my brother and he suggested the following;

let the current lease run through 6/30/05 and do not renew it. Let it sit vacant for 2 years and then sell it. If house prices remain static for those 2 years, I could walk away with $250k, tax free. The $19k in mortgage payments would be a lot less than the capital gains tax on $250k.

Does this seem reasonable? Legal?

Neither reasonable nor legal. The 250K capital gains exclusion is only available if you own AND occupy the house as your primary residence for 2 of the 5 years prior to sale. IIRC, your initial post implied that you no longer qualified, but I don't believe you ever specified the dates you purchased, moved in, moved out, and converted to rental status. Therefore, it's possible that you may still qualify for the exclusion.

If you don't, you may be able to move back into the property and re-establish it as your primary residence (by changing your auto registration, voting registration, bank/credit card reporting address, etc.) for as long as it takes to get two years of use. (The usage period does not have to be continuous.)

Ira