VA Announces Tax Deductible VA Loan Funding Fee
What follows is not tax advice. Get the help of a trained tax professional or contact IRS.gov directly to learn what the current year’s tax regulations are and how what follows may apply to your specific, unique circumstances.
The Department of Veterans Affairs announced updated guidelines in 2026 for VA loan program users. VA borrowers may now deduct VA loan funding fees on federal tax returns when purchasing a home, a policy shift from previous years. The move potentially offers a lower tax burden for those who qualify for VA home loans and buy a home with one.
VA Announces Tax-Deductible VA Loan Funding Fee
VA.gov describes the VA loan funding fee as “a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.“
This one-time payment is required when a borrower wants to ” buy, build, improve, or repair a home or to refinance” a VA mortgage.
How Much is the VA Loan Funding Fee?
The VA loan funding fee paid at closing will vary based on several factors, including the loan type, the total amount borrowed, and whether the person has used their VA home loan benefit previously.
Under the VA loan funding fee structure at press time, VA loan funding fees generally range from 0.5% to 3.3% of the total loan amount. But that’s not the most important detail.
A first-time homebuyer making no down payment will typically pay a higher percentage than someone who provides a 5% or 10% down payment. Subsequent users of the benefit also face different fee structures compared to those using it for the first time.
Borrowers can pay this fee in full at closing or roll it into the mortgage.
Some Are Exempt
Some don’t have to pay the VA loan funding fee at all. These include veterans who receive compensation for service-connected disabilities, those entitled to disability compensation if they were not receiving retirement or active duty pay, and qualifying surviving spouses of veterans who died while serving.
Additionally, active duty service members who have been awarded the Purple Heart are exempt from the fee.
How You Pay the VA Loan Funding Fee Matters
When filing taxes, borrowers should distinguish between the different ways the VA loan funding fee is paid. If the fee was paid upfront at closing, the entire amount may be eligible for a deduction in the year the purchase occurred, depending on the current tax year’s guidelines.
If the fee is financed into the loan, the deduction rules may differ, and borrowers should verify how the IRS treats amortized costs over the life of the loan.
Records from the closing process, such as the Closing Disclosure or the HUD-1 Settlement Statement, may be necessary to provide proof of the payment to the IRS.
What to Know
Tax laws are subject to change and vary based on individual financial circumstances. The impact of a deduction depends on whether a taxpayer chooses to itemize deductions or take the standard deduction for that year. Consulting with a qualified tax professional or a tax lawyer is recommended to make the most informed choice at tax time.
Borrowers who have recently closed on a home or are currently in the process of a purchase should gather their documentation early. Keeping a clear record of the funding fee amount and the transaction date will simplify the filing process.
If you already filed taxes for the applicable year, it may be possible to file an amended return to claim the deduction.
About the author
Editor-in-Chief Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.
