Tax Advantages of Owning a Home

While renting a home gives you the freedom of moving whenever you want, realizing the dream of home ownership can give you far more benefits, the most obvious being the growth of your nest egg coming from normal market appreciation and the additional equity increase that you gain from making home improvements over time.

Homeownership can also enhance your financial status with some of the following tax advantages that are especially meaningful for homeowners in Wisconsin and Minnesota.

How Mortgage Payments Lower Taxes?

Making monthly principal and interest payments on your loan may qualify you for a mortgage interest deduction, which reduces your income tax liability proportionately.

This deduction is especially valuable in the first several years of a mortgage when interest makes up the largest portion of your monthly payment. For many first-time homebuyers in Wisconsin and Minnesota, this can mean meaningful tax savings that make homeownership more affordable.

How Do Property Taxes Offer Tax Benefits for Homeowners?

Owning your own home means paying property taxes and, with some limitations, may give you an additional tax deduction on your income taxes.

Property tax rates can vary widely across Wisconsin and Minnesota based on:

• County and municipal tax rates
• School district funding levels
• Changing property values over time

This deduction helps offset those costs and can provide long-term financial relief, especially as property values rise.

Can Mortgage Insurance Premiums Be Deducted From Taxes?

If your home loan includes mortgage insurance premiums and your income qualifies, you may be able to deduct those payments to help lower your tax bill.

Mortgage insurance — often called PMI (Private Mortgage Insurance) — is typically required when a buyer makes a down payment of less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults but also allows buyers to purchase a home sooner instead of waiting years to save a larger down payment.

You may need PMI when:

• Your down payment is less than 20% of the purchase price
• The loan type or lender requires added coverage
• You want to qualify for a mortgage sooner without waiting years to save

Being able to deduct those premiums makes the cost of buying a house more manageable and helps new homeowners move forward with confidence.

Which Home Improvement Expenses Are Tax-Deductible?

Energy-efficient upgrades not only reduce your utility bills but may also qualify you for federal or state tax credits.

Examples include:

• Insulation and air sealing improvements
• High-efficiency furnaces and HVAC systems
• Smart thermostats and energy-saving appliances
• Solar panels and renewable energy systems

In Wisconsin, the Focus on Energy program provides incentives for upgrades like insulation, furnaces, and smart thermostats. Minnesota homeowners may benefit from Solar*Rewards and other renewable energy programs. These improvements make your home more comfortable while providing long-term financial and environmental benefits.

What Tax Deductions Can You Get For Running a Business From Home?

Having a home-based business and the improvements that are associated with that business may also contribute to decreasing your tax liability. The square footage percentage of the portion of your home where you conduct business may give you additional tax deductions.

This can include a portion of your mortgage interest, utilities, internet service, and even maintenance costs tied to your office space. For many small business owners in Wisconsin and Minnesota, especially those in rural communities, these deductions can provide meaningful financial relief and make it easier to run a business from home. Always work with a tax advisor to ensure you are applying the rules correctly.

How Does the Capital Gains Exclusion Work When You Sell Your Home?

If you sell your primary residence after living in it for at least two of the last five years, you may be able to exclude up to $250,000 of profit from the sale ($500,000 for married couples) from your taxable income. This can provide significant tax relief when upgrading to a new home.

Key rules for qualifying include:

• You must have owned and lived in the home for at least 2 of the last 5 years
• Individuals may exclude up to $250,000 in gains
• Married couples filing jointly may exclude up to $500,000 in gains

This exclusion is one of the most valuable tax benefits of homeownership because it allows you to keep more of the profit from the sale in your pocket rather than paying it to the IRS. For many homeowners in Wisconsin and Minnesota, where property values have steadily risen, this can mean substantial savings when moving to a larger home, downsizing, or relocating for work. Unlike other tax deductions, this benefit is not tied to itemizing and can apply automatically if you meet the residency and ownership requirements.

Final Thoughts

Homeownership is about more than having a place to call your own. It is an investment that can grow your wealth and offer meaningful financial benefits through tax advantages like mortgage interest deductions, property tax relief, energy-efficient improvement credits, and more. When the time comes to sell, the capital gains exclusion can also help you keep more of your hard-earned profit.

At Forward Bank, we believe in helping our neighbors make the most of every opportunity that comes with owning a home. Whether you are preparing to buy your first house, planning upgrades, or looking ahead to the future, the Forward Bank team is here to be your community-driven financial partner.