From the Blog
The VA Funding Fee Just Became Tax-Deductible: What San Antonio Military Buyers Save
The VA funding fee on purchase loans became tax-deductible starting with tax year 2026, per VA News. For a first-time VA buyer putting less than 5% down, the fee is 2.15% of the loan, which is $6,450 on a $300,000 purchase, and that amount can now be itemized on your federal return. Here is how the deduction works, who it applies to, and the fine print that matters for military families moving to San Antonio.
The VA funding fee on purchase loans became tax-deductible starting with tax year 2026, per VA News. For a first-time VA buyer putting less than 5% down, the fee is 2.15% of the loan, which is $6,450 on a $300,000 purchase, and that amount can now be itemized on your federal return. Here is how the deduction works, who it applies to, and the fine print that matters for military families moving to San Antonio.
For the full military move picture, this is the video I send PCS families before they start looking.
On my channel: Nobody Warns Military Families About Moving to San Antonio TX
What changed for 2026
VA News announced in February 2026 that veterans, service members, and surviving spouses can deduct the VA funding fee on federal tax returns for tax year 2026, the returns you file in 2027. The change covers the funding fee paid on home purchases using a VA-backed or VA direct loan. It does not apply to older, expired tax years, and it does not cover refinances, which carry their own rules.
The fee, in dollars
The funding fee is a percentage of the loan amount, and the rate depends on your down payment and whether it is your first use. For a first-time use with less than 5% down, the fee is 2.15%; with 5% or more down it drops to 1.5%, and with 10% or more it is 1.25%. Subsequent use with less than 5% down is 3.3%. On a $300,000 loan at 2.15%, the fee is $6,450; on a $400,000 loan it is $8,600. Veterans with a service-connected disability rated 10% or higher, and certain surviving spouses, are exempt from the fee entirely, which remains the biggest win of all.
How the deduction works
The fee is claimed by itemizing on Schedule A of Form 1040, where it is treated like mortgage interest or discount points. The deduction is subject to income phase-out limits based on your adjusted gross income, so it is not a flat benefit for every household. And there is a catch worth knowing: if you later receive a refund of the funding fee, for example from a retroactive service-connected disability rating, the refund is taxable income in the year you receive it.
The Texas angle
Texas has no state income tax, so this deduction shows up on your federal return only. It still matters for cash flow: on a typical San Antonio purchase, the fee runs thousands of dollars, and itemizing it can lower the tax bill for the year you buy. The fee can also be financed into the loan rather than paid at closing, which changes the math on what you itemize, so it is worth deciding with your lender and a tax professional before closing.
What to do now
If you are buying with a VA loan this year, keep your Closing Disclosure and any paperwork that shows the funding fee amount. Confirm the exact fee on your loan estimate, double-check whether you qualify for the disability exemption, and ask a tax professional whether itemizing makes sense for your income level. The deduction is new, so the people preparing your taxes may not know to ask for the number.
Written by Phyllis Domingo
REALTOR® · TX License 745926 · 100+ homes sold · Helping families move well in San Antonio and the Hill Country since long before the hard part became normal.
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