The VA Funding Fee Is Finally Tax Deductible. Here Is What That Actually Means for You.
Jeanette Spain
21-year Air Force veteran. Central Texas Realtor.
The short answer
Yes. Starting with tax year 2026, the VA funding fee is deductible on Schedule A, because the fee is now classified the same way as private mortgage insurance. You have to itemize to claim it, and you claim it in the year the loan closes, even if you financed the fee into the balance rather than paying cash.
For years the funding fee sat in an awkward place. It is the cost of the benefit, the thing that keeps the VA loan program running without taxpayer subsidy, and most buyers never see it as cash because it rolls into the loan. That made it easy to ignore. It is also real money. On a first-use purchase with nothing down, it is 2.15% of the loan amount.
As of tax year 2026, that money is deductible. Here is what has to be true for you to actually get it.
Three conditions, all of which have to hold
You itemize on Schedule A
This is the one that eliminates most people. If your total itemized deductions, meaning mortgage interest, state and local taxes, charitable giving, and now the funding fee, do not clear the standard deduction, the deduction is worth nothing to you. In Texas the property tax line often does the heavy lifting here, which is why itemizing is more common in this state than in others.
You actually paid a funding fee
If you have a service-connected disability rating, you are exempt from the funding fee entirely. There is nothing to deduct, because there was nothing to pay. That is the better outcome, and it is worth confirming on your Certificate of Eligibility before closing rather than fighting for a refund afterward.
You claim it in the year you closed
The full fee is deductible in the tax year of closing. This holds even if you rolled the fee into the loan and will be paying it off over thirty years. Close in December and the whole thing lands on that year's return. Close in January and you wait a full cycle to see it.
What it looks like in dollars
First use, no money down, 2.15%. These are the purchase prices I see most often across Central Texas.
Purchase price
Funding fee
Deduction at 22%
$300,000
$6,450
$1,419
$400,000
$8,600
$1,892
$500,000
$10,750
$2,365
Illustrative only. The right-hand column assumes a 22% marginal bracket and assumes you already itemize. Your actual benefit depends on your bracket, your filing status, and whether your itemized total clears the standard deduction.
So the honest framing is this. It is not a rebate. It is a reduction in taxable income, and for a household that already itemizes, it is somewhere between one and three thousand dollars of real value in the year you buy. That is a decent chunk of what you spent on the inspection, the appraisal, and the first year of insurance.
What this does not change
The funding fee still does not count against the VA's 4% seller concession cap. That has been true and it stays true, which means a seller can agree to cover your funding fee and still contribute the full 4% toward everything else. I negotiate that on purpose, and most buyers do not know to ask.
It also does not change the decision to buy. A deduction you collect once, in April of the following year, should not be the reason you sign a contract. It is a nice line on the return. It is not a strategy.
One thing I am not
I am a Realtor, not a CPA. I can tell you what the fee is, what you paid, and where it shows up on your closing disclosure, and I will send you that document without being asked. The filing itself belongs to your tax preparer. Bring them the closing disclosure and ask them directly whether itemizing beats the standard deduction for your household this year.
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