Barrett Henry, MRPFor the first time since 2021, the VA funding fee is tax deductible. Congress restored the deduction for 2026, giving veterans who pay the fee a meaningful tax benefit on top of the zero-down-payment advantage, no private mortgage insurance, and competitive rates that already make the VA loan program the strongest mortgage option available to eligible service members and veterans.
For Tampa Bay veterans buying near MacDill AFB, in Brandon, Riverview, Wesley Chapel, or anywhere in Hillsborough, Pinellas, Pasco, or Manatee counties, the math is straightforward: a $400,000 VA loan at first-time use generates an $8,600 funding fee. Deducting that expense in the year you pay it reduces your taxable income and puts real money back in your pocket at tax time.
The VA funding fee is a one-time charge paid to the Department of Veterans Affairs at loan closing. Unlike mortgage insurance on conventional and FHA loans, the funding fee is not an ongoing monthly cost — it is a single fee that either gets paid in cash at closing or rolled into the loan balance. The fee funds the VA home loan guarantee program and keeps the program self-sustaining without requiring taxpayer appropriations.
The 2026 VA funding fee rates are unchanged from 2023:
Veterans with a service-connected disability rating of 10% or higher are fully exempt from the VA funding fee — they pay nothing. Purple Heart recipients and surviving spouses of veterans who died in the line of duty or from a service-connected disability are also exempt. The VA funding fee exemptions guide covers the full list of qualifying conditions and how to document your exemption before closing.
The VA funding fee was deductible for years under a provision of the tax code that treated it similarly to mortgage insurance premiums. That provision expired at the end of 2021 and was not renewed for the 2022, 2023, 2024, or 2025 tax years — meaning veterans who paid the funding fee during those years got no federal tax deduction for it.
For 2026, Congress restored the deduction. Veterans who close on a VA loan purchase or refinance in calendar year 2026 and pay the funding fee can deduct the amount as an itemized deduction on their federal income tax return. The deduction applies to the year the fee is paid — a closing in October 2026 generates a 2026 deduction, not a 2027 one.
This restoration covers both purchase loans and VA refinances, including the IRRRL and cash-out refinance programs. If you refinanced a VA loan in 2026 and paid a funding fee, that fee is deductible on your 2026 return.
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The deduction's value depends on two things: the size of the funding fee and your marginal federal income tax rate. The fee is a percentage of the loan amount, so Tampa Bay's active housing market — where median home prices sit well above $350,000 in most purchase corridors — means the dollar amounts are significant.
At 2.15% for a first-time VA user with no down payment:
Veterans in a 24% or 32% tax bracket save proportionally more. A senior officer or senior NCO purchasing a home in South Tampa or one of the more expensive Pinellas County coastal communities and financing $600,000 with a subsequent-use VA loan (3.3% fee) would have a $19,800 funding fee deduction — potentially $6,336 in federal tax savings at the 32% rate.
The deduction does not reduce the fee itself — you still pay the same amount at closing. What it does is offset a portion of that cost through a reduction in your federal tax bill when you file.
The funding fee deduction only helps you if you itemize deductions on Schedule A rather than taking the standard deduction. For 2026, the standard deduction is approximately $30,000 for married couples filing jointly (adjusted for inflation from the 2025 level of $29,200) and around $15,000 for single filers.
For most Tampa Bay VA loan buyers, itemizing makes sense because the deductible costs add up quickly:
That combination — mortgage interest plus property taxes plus the funding fee — commonly exceeds the standard deduction for married couples, making itemizing the financially correct choice. Florida has no state income tax, so you cannot deduct state income taxes, but the SALT deduction for property taxes alone still helps push the total over the threshold. The Florida property tax exemptions guide covers the additional tax savings available to veterans through Florida's homestead and disability exemption programs.
Most VA borrowers roll the funding fee into the loan balance rather than paying it out of pocket at closing — one of the features that makes VA loans genuinely zero-out-of-pocket for eligible veterans. The VA closing costs guide covers how this works in detail.
When the fee is financed, the deductibility is more nuanced. Points and fees financed into a mortgage are generally deducted over the life of the loan rather than entirely in the year of purchase. For a 30-year loan, that means approximately one-thirtieth of the financed fee would be deductible each year — a much smaller annual deduction than the lump-sum deduction available to veterans who pay the fee in cash at closing.
If you have the option to pay the fee at closing — which requires cash reserves at closing that many veterans do not have — the tax benefit of a full-year deduction is one reason to consider it. This is a personal financial calculation that a tax professional can help you work through before your closing date.
Veterans with a 10% or higher service-connected disability rating pay no funding fee at all — a savings of thousands of dollars at closing that requires no deduction because the cost never exists. If you receive VA disability compensation, your lender is required to verify your exemption status before closing. Providing a current copy of your VA award letter is the fastest way to document the exemption. The disabled veteran home buying benefits guide covers the full range of financial advantages available to Florida veterans with a disability rating.
Veterans approaching the 10% threshold — perhaps with a pending disability claim — may benefit from timing a home purchase around the claim's resolution. Closing before a disability rating is officially awarded means paying the full funding fee with no exemption. Closing after the award means paying nothing. The VA will not retroactively refund a funding fee paid before a disability determination was made, with limited exceptions for claims pending at the time of closing.
The VA funding fee appears on your Closing Disclosure (formerly the HUD-1 settlement statement) as a line item. Your lender may also report it on IRS Form 1098 alongside your mortgage interest. When you file your 2026 return, report the deductible portion on Schedule A. If you paid the fee in cash at closing, the full amount is deductible in 2026. If you financed it, work with a tax professional to determine the correct annual deduction amount.
Keep a copy of your Closing Disclosure — it is the primary document you will need to substantiate the deduction if the IRS asks. Most Tampa Bay veterans who use a VA loan and itemize will find the combination of mortgage interest, capped property taxes, and the funding fee deduction meaningfully reduces their federal tax liability for the year of purchase.
Veterans who are also first-time homebuyers may find additional programs and resources at firsttimehomebuyertb.com, including Florida state-level programs that can stack with a VA loan and further reduce the cost of buying in Tampa Bay.
Barrett Henry, MRP, at REMAX Collective has helped Tampa Bay veterans navigate every dimension of VA loan financing for more than 23 years — including the tax and financial planning questions that arise when a major purchase intersects with a meaningful change in the tax code. If you want to understand exactly how the 2026 funding fee deduction applies to your specific situation, or if you are ready to start the process of buying near MacDill AFB, call (813) 733-7907 or reach out through the free consultation form.
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This article is for educational purposes only and does not constitute financial, legal, or tax advice. Consult a qualified professional for advice specific to your situation.
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Yes. Congress restored the VA funding fee tax deduction for 2026, allowing eligible veterans who pay the fee to deduct it as an itemized expense on their federal tax return. The deduction had expired at the end of 2021 and was not available for the 2022–2025 tax years. Veterans who close on a VA loan purchase or refinance in 2026 and pay the funding fee in cash at closing can deduct the full amount in the year they pay it.
On a $400,000 VA loan with no down payment and first-time VA use, the funding fee is 2.15% of the loan amount — $8,600. For a subsequent VA use with no down payment, the fee rises to 3.3%, or $13,200 on a $400,000 loan. Veterans who put at least 5% down pay a reduced rate of 1.5% regardless of whether it is a first or subsequent use. The fee is the same across all Tampa Bay counties and is based on the loan amount, not the purchase price.
If you financed the funding fee into your loan balance rather than paying it in cash at closing, the deductibility is more complex. Financed fees are generally treated like mortgage points — deductible ratably over the life of the loan rather than all at once in the year of purchase. A tax professional familiar with VA loans can determine whether your specific situation qualifies for full-year deduction or requires amortization. The distinction matters most on large loan amounts where the fee is significant.
Yes, surviving spouses of service members who died in the line of duty or from a service-connected disability are exempt from the VA funding fee entirely — meaning they pay nothing and have nothing to deduct. Surviving spouses who qualify under other VA eligibility rules and are not exempt from the fee can deduct the fee they pay on the same terms as any other VA borrower.
Yes. The deduction applies to both purchase loans and VA refinances — including the VA IRRRL (Interest Rate Reduction Refinance Loan) and VA cash-out refinances. The IRRRL funding fee is 0.5% of the loan amount, which is relatively small but still deductible. On a cash-out refinance of a $350,000 balance, the 2.15% first-use fee would be $7,525 — deductible in the year of the refinance if paid in cash at closing.
Barrett Henry, MRP
Broker Associate, REMAX Collective · Military Relocation Professional
Barrett helps Tampa Bay veterans and military families buy homes using their VA benefit. Son of a U.S. Air Force veteran with 23+ years of real estate experience. Learn more →
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