First-time homeowners sometimes make the mistake of not adding up all the costs of getting mortgage loans. Of course shopping for competitive mortgage rates is important, but keep in mind that your monthly payment includes real-estate taxes and homeowners insurance. Anytime you use a monthly payment calculator to figure out the cost of getting a home loan, it’s important  to include your best estimates for insurance and taxes.

Property Taxes

You can’t deduct your homeowners insurance premiums, but you can deduct real-estate taxes. Deductions can be taken for any state, local, or foreign taxes on real property. If your state or county imposes local benefit taxes related to property improvements such as sidewalks or streets, they cannot be deducted.

After you’ve owned a home for a while, you can file an appeal to try and get your property taxes lowered if you think you are paying too much. You must contact the local government to find out what the procedure is for appealing property taxes. Generally, you only have a certain window of time to appeal after receiving your annual assessment.

Mortage Interest

The interest paid on a home mortgage is also deductible. Interest on mortage loans can be deducted for your principal residence and for a vacation home. If you have a second home that is also rented out for part of the year, you must use the house for more than 14 days or more than 10% of the number of days during the year that the home is rented at fair value. If you have more than one property that you rent out, the mortgage interest deduction can only be taken on one of them.

Deductible interest must be paid on a mortgage for your first home, second mortgage, home equity loan, or home equity line of credit (HELOC). If you pay mortgage interest for someone else but are not legally liable for the loan, you cannot take a deduction for that amount.

Filing Your Taxes

When filing your income taxes on Form 1040 you have to decide whether you are going to take the standard deduction or itemize deductions on a Schedule A. The best rule of thumb is to itemize deductions if they add up to more than the standard deduction. But unless you choose to itemize you won’t be able to deduct interest from your home loan or real-estate taxes.