Finished the live-in flip and I'd rather rent it, so what does that cost me

Your point 3 is the one that decides it and you've already framed it correctly. You're putting a five figure tax position at risk to earn a five figure cash flow, and the two numbers are close enough that the tie breaker is how confident you are in the rules. Confidence you buy from a CPA costs a few hundred dollars, which is cheap against either number.

Also check what your lender's loan documents say about occupancy if you financed this as a primary residence. Most owner occupied notes require you to occupy for some period, and after that period converting to a rental is generally fine, but the term is in your note and you should read it rather than assume the standard. Separate issue from the tax one and easier to answer, since the answer is in a document you already have.

Taking your three questions as mechanism, and the application to your return is a CPA question.

On the ordering point, the rule you half remember is real. The exclusion is reduced for what the statute calls periods of nonqualified use, and the way that provision is generally written, use of the property after the last date it was your principal residence, inside the five year lookback, is not counted as nonqualified use. Rental time before you moved in is treated differently from rental time after you moved out. That distinction turns on how the statute applies to your specific dates, so confirm it in writing with a tax professional before you sign a lease.

On depreciation, the exclusion does not cover depreciation allowed or allowable after May 6, 1997. Depreciation you take while it is a rental comes back at sale as its own piece of gain, taxed at its own rate, and it does not disappear inside the $500,000. At roughly $12,000 a year for two years that is around $24,000 of gain that stays taxable, and the rate on it is higher than the long term capital gains rate. Note the phrase allowed or allowable. If you rent it and do not claim depreciation, the recapture is generally still calculated as though you had.

So the comparison you set up in point 3 shifts. Your $25,000 of pre vacancy cash flow is sitting against roughly $24,000 of newly taxable gain plus vacancy, repairs, management, and the transaction risk of a slower market in year four. That is a much thinner trade than the raw rent spread suggests.

One assumption is carrying the whole thing: that the house still sells near $470,000 in three years. Nothing about the tax treatment protects you from that.

@rena-expert's last line is the one I'd sit with. You're holding a $470k asset to earn $25k, and if the price moves 5% the wrong way that's $23k gone and you still owe the recapture. Sell it or keep it forever, the two year rental in between is the version where you get paid least for the most risk.