1-Do we have to purchase another home with the home sale proceeds for the capital gains benefit, or can we invest some or all of the money and still have the capital gains benefit?============>>>>>>>>>>>>>no; The rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts. If you used pre-1997 rules for residential sales, don't worry. That doesn't disqualify you from claiming the exclusion on any residential sales now. The law change applies to all sales since it took effect.
After may 6th or 7th I guess 1997, To qualify for the $250k/$500k home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. If you meet all the requirements for the exclusion, you can take the exclusion any number of times. But you may not use it more than once every two years. By wisely using the exclusion, you can buy and sell many homes over the years and avoid any income taxes on your profits. To qualify for the exclusion, you must have used the home you sell as your principal residence.
2-Will the capital gains tax be zero?
==============>>>>>>>>>>>>Yes; as mentioned above; you can make tax-free profits of $250k (or $500k depending on your filing status) every time you sell a home.