If you are a Veteran or active-duty service member who used your VA home loan benefit recently, this is genuinely good news. Starting with the 2026 tax year, the VA funding fee is now tax deductible as an upfront mortgage insurance premium, reported on Schedule A of your federal return. That changes the real after-tax cost of buying a home with your VA benefit.
What is the VA funding fee, in plain English
The VA funding fee is a one-time charge most VA borrowers pay at closing. It exists because the VA loan program does not charge monthly mortgage insurance like FHA or PMI on conventional loans. Instead, that insurance cost is bundled into a single upfront fee that goes back to the VA to keep the program healthy for the next generation of Veterans.
For 2026, the rates remain unchanged from 2023:
- First-time use, $0 down: 2.15% of the loan amount
- First-time use, 5-9.99% down: 1.50%
- First-time use, 10%+ down: 1.25%
- Subsequent use, $0 down: 3.30%
- VA cash-out refinance: 2.15% (first use) or 3.30% (subsequent)
- VA IRRRL (streamline refinance): 0.50%
You can roll the funding fee into your loan, which most Veterans do, so it does not require cash at closing.
The new tax deduction: what changed
For tax years starting in 2026, the IRS now treats the VA funding fee as a deductible mortgage insurance premium. To take the deduction, you have to itemize on Schedule A of Form 1040 rather than taking the standard deduction. If you do, you report the funding fee amount as a mortgage insurance premium and reduce your taxable income by that amount.
Real example: A Veteran financing $400,000 with a 2.15% first-use funding fee pays $8,600 in funding fee. If their marginal tax rate is 22%, the deduction is worth roughly $1,892 back at tax time.
For most Veterans who take the standard deduction, this won't change anything (you can't claim it without itemizing). But for Veterans whose total itemized deductions including mortgage interest, property taxes (up to the SALT cap), and charitable giving exceed the standard deduction, this is a real new dollar-for-dollar benefit. Talk to your tax preparer to confirm your situation.
Who is exempt from the funding fee entirely
You do not pay the funding fee at all if you are:
- A Veteran receiving VA disability compensation, or eligible to receive it
- A surviving spouse of a Veteran who died in service or from a service-connected disability
- A Purple Heart recipient on active duty
If you are exempt and you were charged a funding fee on a previous VA loan in error, the VA can refund it. Contact the VA Regional Loan Center to investigate.
2026 entitlement and loan limit changes
Eligible Veterans with full entitlement still have no maximum loan limit when buying with a VA loan. The conforming loan limit (which jumped to $832,750 baseline and $1,249,125 in high-cost counties for 2026) only matters for Veterans with partial entitlement, where the higher limit means more buying power without bringing cash to the deal.
The VA Home Loan Program Reform Act passed earlier this year focused mostly on foreclosure prevention rather than program fees, so the core economics of the VA loan are unchanged from 2025.
Bottom line for Veterans buying or refinancing
The combination of zero down payment, no monthly mortgage insurance, competitive interest rates, and (now) a tax-deductible funding fee makes VA loans one of the strongest mortgage products in America. If you served and have not used your benefit, you are leaving money on the table. We help Veterans pull their COE, calculate their entitlement, and run real loan numbers on our VA loans page.