Sp, your friend would have to speak to a tax pro, but here is my answer based on past experience.
Both laws are still in affect, but only your rule would apply in this case.
Your friend is referring to what is called a 1031 exchange. A 1031 can only be done if you sold an investment property and are buying a new investment property. They don't work for primary residences.
What you are referring to is up to $250,000 (if single and up to $500,000 for a married couple) in gains being tax free for a homeowner selling their primary residence.
The gains don't have to be rolled into a new home.
I hope this was helpful, and again, he should speak to his tax pro.