Hi everyone and welcome back to Money Girls Quick and Dirty Tips for a richer life.

I'm Laura Adams. We've had a big increase in downloads recently, so if you're new to the show, thanks for clicking on Money Girl. Today's topic was inspired by several emails I've received recently about selling real estate,

like this one from Jim who asks, I have a house on 40 acres that I've lived in for 35 years

and I'm thinking of selling. Do I have to pay any capital gains?

A house and property are worth about $175,000.

One of the ways the government encourages home ownership, or any activity for that matter is by giving us tax incentives.

Tax incentives are great because they allow you to keep more of your money instead of paying it to the government.

One of the biggest breaks you can get becomes an option

when you sell your primary residence,

and it has to do with what Jim mentioned,

Capital Gaines.

So let's start off by briefly discussing capital gains and losses. You know that you have to pay tax on income from your job, business, or interest you receive from a bank account, for instance. That's called ordinary income. But you also have to pay tax on profit you make from an investment. That's called a capital gain. A capital gain occurs when you sell a capital asset for more than what it cost you.

And a capital loss is, you guessed it, money you lose on the sale of a capital asset.

Real estate, stocks, mutual funds,

and many other types of investments

are capital assets.

When you make a profit from buying them low

and selling them high, bravo. You just created a capital gain.

But what about capital losses?

You can offset most capital losses against your capital gains to reduce your tax liability.

But unfortunately, that's not the case with the loss from the sale of your main home.

And that's a question I get frequently,

...