The rule to which you are referring was eliminated inn 1997.
You no longer need to reinvest the proceeds to avoid income tax.
The rule has been replaced by the "last two out of five" rule, which is to say if you owned the residence and used it as your principal residence for the last two out of five years leading up to the sale, then you can exclude up to $250,000 in capital gain ($500,000 if married filing a joint return).
