[turbo6bar]

$500k (spouse & yourself) in profit is tax-free.

The answer to your second question is 'it depends.' If you can earn a higher rate of return with an outside investment, you should invest and pay monthly mortgage payments. Do you deduct mortgage interest from your income tax or do you take the standard deduction? Currently, high-yield savings accounts are paying around 5% APY. Money market is similiar and treasuries are also paying around 5%.

You probably don't have to worry about capital gains unless you made over $500k profit on the sale of your last home. This assumes you've lived there for the last 2 years.

Unlike investment properties, any repairs to your residence are not tax deductible. You get to eat the cost in exchange for the privelege of ownership.

Personally, I would just pay off your new home and put the $20k away for a rainy day. Others will advocate investing the proceeds and pocketing the incremental profit. Different strokes for different folks.