Surprising VA Fee Write-Off Resurrected

The Department of Veterans Affairs has officially announced that veterans and service members can now deduct their VA funding fee on federal taxes — a benefit that expired in 2021 and has just been restored for 2026.

At a Glance

The VA confirmed that veterans, service members, and surviving spouses can deduct the VA funding fee starting with tax year 2026.
The deduction goes on Schedule A of Form 1040, similar to how mortgage interest is claimed — but you must itemize to benefit.
Income limits apply: the full deduction phases out between $100,000 and $109,000 in adjusted gross income.
Veterans with service-connected disabilities are already exempt from paying the fee, so this deduction does not apply to them.

A Real Tax Break Returns for VA Borrowers

The Department of Veterans Affairs (VA) made it official: veterans and service members who paid a VA funding fee in 2026 can now deduct it on their federal taxes. The deduction had expired in 2021. Congress brought it back, and the VA confirmed the change applies to tax year 2026 returns. This is real money — on a $300,000 loan with no down payment, the funding fee for a first-time user comes to about $6,450. That’s a deduction many veterans have never been able to claim.

The fee itself ranges from 0.5% to 3.3% of the loan amount, depending on your down payment, loan type, and whether it’s your first or later use of the VA loan benefit. For most first-time buyers putting less than 5% down, the fee is 2.15%. For those using the VA loan again, it rises to 3.3%. You can pay it upfront at closing or roll it into the loan. Either way, the deduction applies to the tax year in which the fee was paid.

How to Claim It on Your Taxes

To claim this deduction, you must itemize on your federal return using Schedule A of Form 1040. The funding fee goes on the mortgage insurance premium line. If you rolled the fee into your loan instead of paying it at closing, the deduction may be spread out over time rather than taken all at once. You cannot claim it if you take the standard deduction. A tax professional can help you decide which approach saves you more money.

Income limits do apply. Borrowers with an adjusted gross income (AGI) at or below $100,000 can claim the full deduction. The benefit phases out by 10% for every $1,000 above that threshold. Once your AGI hits $109,000 — or $54,500 if married filing separately — the deduction disappears entirely. That narrow window means middle-income veterans may see little or no benefit, which is a real design flaw worth noting.

Who Qualifies — and Who Doesn’t

Veterans with service-connected disabilities are already exempt from paying the VA funding fee altogether. That exemption covers any disability rating, from 10% to 100%. Purple Heart recipients on active duty are also exempt. Since these veterans pay no fee, there is nothing to deduct. The tax break applies only to those who actually paid the fee — typically non-disabled veterans, active-duty service members, and eligible surviving spouses buying a home with a VA-backed loan.

FHA, VA, and Conventional loans all handle mortgage insurance and funding fees differently, these costs can shape your true bottom line. Which fee structure do you think offers the best value? pic.twitter.com/ARew9dpSod

— Dennis O'Brien (@dennisandlaurie) July 13, 2026

One note of caution: the IRS has not yet published an updated version of Publication 936 or Form 1040 Schedule A instructions that explicitly names the VA funding fee as deductible. The VA’s announcement is clear, but official IRS guidance has lagged behind. Some older resources and a few veteran-focused websites still say the fee is not deductible, reflecting outdated information. Veterans should consult a tax professional and point them to the VA’s official 2026 announcement to make sure the deduction is filed correctly and not overlooked.