We have a RENTAL property.  This property has never been used as our
primary residence.

Currently we have a renter that is paying rent on time.  Their 1 yr
lease expires this OCT and we are confident that they will want to
renew for another year.

Prop value has increase around 30% since we purchased this home (7/04)  
Will capital gains taxes be any more or less (% wise) if we sell after
1 year or 2 years.  Trying to figure out if taxes paid are any
different if we sell after 1 year or 2 years.

Should we hang on to this prop longer, since we have renters paying
towards our equity?

Do the smart thing and do a 1031 tax free exchange.  Or hang on longer
and let your equity accumulate.  you have a renter (no problems?) then
hang on to a good thing, and let them pay down your principal.  When
you do sell, do a 1031 tax exchange, take the money and roll it into
your next rental/commercial, do this for the next 10-15 years, and
gradually get bigger and bigger income properties. You'll end up with
a possible 15M gain in the next 15 years.

Best of luck.

There is an excellent book out called "How I Turned $1,000 Into
$1,000,000 in Real Estate" which details the process of buying income
properties using multi-mortgage leverage. It goes on to show how to
upgrade so you don't owe taxes until you retire (or die, in which case
your kids get all the benefit of your efforts, at which time you get
better rates. This book may be out of date, but I am sure there is
something which approximates it. Served me well in manipulating
properties.