VA Funding Fee Tax Deductible: San Antonio 2026

By Anthony Sharp — USAF Veteran & Realtor, Sharp Realty Group
Last updated: July 2026

You closed on a Cibolo home last spring, rolled the VA funding fee into the loan because that is what everyone does, and watched about $7,500 disappear into your balance. Your CPA never mentioned it again and neither did your lender. For the 2026 tax year that money may come back to you. The catch is an income cutoff that decides the whole thing, and more than half of the veterans I sit down with never pay this fee at all, so here is the honest math for buyers near Randolph and across the northeast San Antonio corridor.

TL;DR - The Honest Take on the VA Funding Fee Deduction

The VA funding fee is deductible again starting with the 2026 tax year, and this time Congress made it permanent. Three things decide whether it means anything to you. You have to itemize, your adjusted gross income has to land under $110,000, and you must actually have paid the fee, which more than half of VA borrowers do not. Your housing allowance never counts toward that income test, so an active duty household clears the bar far more often than a civilian neighbor earning the same money. Anyone with a service-connected rating likely owes no fee at all, which beats any deduction.

Why the VA Funding Fee Is Deductible for the 2026 Tax Year

Congress revived a deduction that had been dead since 2021, and this version does not expire.

Section 70108 of the One Big Beautiful Bill Act (OBBBA), Public Law 119-21, signed 4 July 2025, treats qualified mortgage insurance premiums as deductible qualified residence interest for tax years beginning after 31 December 2025. That is why anyone who bought with a U.S. Department of Veterans Affairs (VA) loan between 2022 and 2025 went looking for this deduction and came up empty.

The funding fee qualifies because Internal Revenue Code section 163(h)(4)(E) defines qualified mortgage insurance to include insurance provided by VA. In a February 2026 announcement, VA’s Loan Guaranty Service confirmed that veterans, service members, and surviving spouses can now deduct funding fees when buying with a VA-backed loan.

Three details trip people up:

• A fee paid in 2026 lands on the return you file in 2027, not the 2025 return you filed this spring.
• The fee is a one-time charge at closing, so in practice this reaches 2026 closings.
• Earlier versions were temporary extensions Congress had to keep renewing. This one has no sunset.

Who Actually Pays the VA Funding Fee Near JBSA

This is the first thing I check before anyone gets excited.

According to VA data, since 2021 more than half of veterans who obtained a VA-backed home loan were exempt from paying the funding fee. You are exempt when any of these fit:

• You receive VA compensation for a service-connected disability, at any rating.
• You are eligible for that compensation but draw retirement or active-duty pay instead.
• You receive Dependency and Indemnity Compensation (DIC) as a surviving spouse.
• You have a proposed or memorandum rating issued before your closing date from a pre-discharge claim.
• You are active duty and showed evidence of a Purple Heart on or before closing.

No fee paid means no deduction to claim, and that is the better outcome. A deduction hands back cents on the dollar. An exemption hands back the whole thing at closing and keeps it out of a balance that would collect interest for 30 years.

Texas gives veterans with a 100% service-connected rating a full residence homestead exemption from property taxes. Those same veterans owe no funding fee. So the veteran with the strongest benefits stack has the least reason to care about this change, because with no fee and little or no property tax their itemized deductions rarely clear the standard deduction. The veteran with no rating pays the full fee and the full county tax bill, and is the one this change actually helps.

I have watched a buyer discover at the closing table that the Certificate of Eligibility (COE) in the file did not show an exemption they had earned. Lenders pull the COE, and sometimes they pull a stale one. Check yours before closing, not after. When a rating comes through later with an effective date retroactive to before your closing, you may be owed the fee back, though VA does not refund it automatically. Call your regional loan center and ask.

The Income Limit That Decides Your VA Funding Fee Deduction

This is where the deduction quietly dies for a lot of households.

The phase-out sits in section 163(h)(3)(E). Your deductible amount drops 10% for every $1,000, or fraction of $1,000, that your adjusted gross income (AGI) exceeds $100,000. The deduction is gone at $110,000. For married filing separately, halve both numbers. On a $7,525 fee from a $350K Cibolo purchase, it works out like this:

• AGI of $100,000 or below, you may deduct the full $7,525.
• AGI of $103,000, you deduct about $5,267.
• AGI of $105,000, you deduct about $3,762.
• AGI of $107,000, you deduct about $2,257.
• AGI of $110,000 or above, you deduct nothing, no matter how large the fee was.

Those thresholds were set in 2006 and are not indexed for inflation, so they have not moved in 20 years.

You also have to itemize. For the 2026 tax year the standard deduction is $16,100 for single filers, $24,150 for heads of household, and $32,200 for married couples filing jointly, per IRS Revenue Procedure 2025-32. Your itemized total has to beat that number or the fee does nothing for you. We have no state income tax, so your state and local tax deduction here is essentially your property tax bill, where a California filer stacks income tax on top. That makes the bar harder to clear. Our high property taxes push back the other way, and the homestead exemption trims the largest slice of that bill, which is money in your pocket and also a smaller deduction. Your Central Appraisal District (CAD) holds your real numbers. Guadalupe CAD covers most of Cibolo and Schertz, Comal CAD covers the New Braunfels side, and Bexar CAD covers Converse, Universal City, and Selma.

How BAH Changes the Math for JBSA Families

Basic Allowance for Housing (BAH) is excluded from gross income under Internal Revenue Code section 134 as a qualified military benefit. It never lands in Box 1 of your W-2. It is not in your AGI.

An active duty family at Joint Base San Antonio (JBSA) can live on a household number well above $100,000 while their AGI sits below it, because a large slice of their compensation is invisible to the calculation. Depending on rank and dependents, the 2026 JBSA BAH rates run from roughly $1,359 to $2,475 a month. At the top of that range that is close to $30,000 a year a civilian neighbor has to count against the threshold and you do not.

IRS Publication 3, the Armed Forces’ Tax Guide, confirms that BAH being excluded from income does not stop you from deducting mortgage interest and real estate taxes you paid with that BAH. You get the exclusion and the deduction. So an O-3 or an E-7 buying in Schertz may qualify for the full funding fee deduction while a dual-income civilian household two streets over gets nothing. Pull your latest Leave and Earnings Statement (LES) next to your last W-2 and look at the gap between them. That gap is the whole point.

Running the Numbers on a Cibolo or Schertz VA Loan

Take a first-time user of the VA loan benefit buying a Cibolo home around $350K with nothing down. Per the funding fee rate charts, first use with less than 5% down runs 2.15%, and the fee is calculated on the loan amount rather than the purchase price.

• Loan amount at zero down: $350,000
• Funding fee at 2.15%: $7,525
• Financed balance: about $357,525

With the 30-year fixed averaging 6.55% as of 16 July 2026, a full first year of interest on that balance lands near $23,300. Stack the funding fee on top and you reach roughly $30,800, about $1,400 short of the $32,200 a married couple needs to itemize. Property taxes on a $350K Cibolo home typically cover that remainder with room to spare. A single filer clears $16,100 on the mortgage interest alone.

Without the funding fee, our couple sits nearly $9,000 below the itemizing line. With it, they are within arm’s reach and their property tax bill carries them over. The fee is rarely the whole deduction. It is the thing that tips you into itemizing at all, in the one year your interest runs highest and a one-time charge lands on top. That first year is usually your only shot.

These numbers move with your rate, appraised value, and closing date, and a July closing gives you well under a full year of interest. Your CPA runs your actual return, so treat these as a starting point rather than a promise.

Where Most VA Funding Fee Tax Advice Gets It Wrong

A good deal of the advice circulating on this carries a mistake that would cost you money.

Several sources, including some written by tax preparers, say the VA funding fee must be amortized over the shorter of the loan term or 84 months, the way a Federal Housing Administration (FHA) upfront premium is. Others claim rolling the fee into your loan forces you to spread the deduction across years.

Both are wrong, and the law says so. Section 163(h)(4)(F) lays out the allocation rule for prepaid mortgage insurance and then closes by stating that the preceding sentences do not apply to amounts paid for qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. The Treasury regulation at 26 CFR section 1.163-11(b) repeats it, confirming the allocation requirement reaches FHA and private mortgage insurance only and does not reach VA. That same regulation notes the rule applies whether premiums are paid in cash or financed, which is why the claim that rolling it in forces you to amortize falls apart on contact with the text.

What that means for you:

• The full VA funding fee is deductible in the year your loan closes, subject to itemizing and the AGI phase-out.
• Financing the fee into your balance does not change that.
• FHA and conventional borrowers do have to amortize an upfront premium. VA borrowers do not, and that is a real edge worth knowing about.

Your servicer reports mortgage insurance premiums in Box 5 of Form 1098, but a one-time funding fee may not show there. Your Closing Disclosure is your proof, and page 2 carries the exact figure. Put it somewhere you will find it in 2027, because I have had past clients come back hunting for a document they signed and never filed. Should Box 5 come back blank or look wrong, ask your servicer for a corrected 1098.

My Playbook for VA Funding Fee Decisions in the Northeast Corridor

A tax deduction is a partial rebate on money you already spent. It is never a reason to spend it. Here is how I rank these calls, in order of what they are worth.

Confirm your exemption first. Make sure your COE reflects any exemption you have earned. Killing the fee beats deducting it every time.

Ask the seller to cover it. VA caps seller concessions at 4% of the home’s reasonable value and specifically names funding fee credits as a concession. San Antonio has cooled into balance, and homes are sitting longer than they did a year ago. That is negotiating room you did not have in 2022. Whether a seller-paid fee stays deductible by you is a question for your CPA.

Look hard at 5% down. The rate charts drop a first-use borrower from 2.15% to 1.5% at 5% down, and to 1.25% at 10%. On that $350K Cibolo purchase, 5% down cuts the fee from $7,525 to about $4,988, a $2,537 swing, while shrinking the balance you pay interest on for three decades. For a family sitting on cash after a Permanent Change of Station (PCS), that often beats holding it.

Then decide on financing the fee with your eyes open. Rolling it in keeps cash at closing and costs interest for as long as you hold the loan. Paying it at the table costs cash now and saves that interest. Neither is wrong. It turns on your reserves and how long you plan to stay, and at JBSA that is usually three years.

I own and self-manage 16 rentals across this corridor, so I sit with a CPA every spring and work through this kind of line-by-line reasoning on my own returns. That is why I will not tell you what your deduction will be. I will tell you what your fee is, whether you should be paying it at all, and what we can negotiate off it. The rest belongs to somebody holding your full return. Fee percentages follow the loan amount, so the same 2.15% lands differently on homes for sale in Cibolo and current Schertz listings.

A tax change like this reads like free money in a headline. In this corridor it is worth real dollars to a specific slice of buyers and nothing to everybody else. Working out which one you are takes five minutes.

Why Work With Sharp Realty Group

• USAF veteran and Military Relocation Professional (MRP) certified, with hundreds of VA transactions closed.
• Cibolo resident of over six years who owns and self-manages 16 rentals across the corridor, so I understand carrying costs and tax timing from the inside.
• Your COE and exemption status checked before we write an offer, not discovered at the closing table.
• Straight talk on every path, even when it costs me the deal.
• 58+ five-star Google reviews and a 2025 Platinum Top 500 Realtor honor.

Get Started

• Call or text: 210-997-0763
• Email: anthony@sharprealtygrouptx.com
• Read the full PCS guide: PCS to Fort Sam Houston Guide 2026
• Office: 213 Terramar, Cibolo, TX 78108

Frequently Asked Questions

Is the VA funding fee tax deductible in 2026?

Yes, for the 2026 tax year. The One Big Beautiful Bill Act permanently restored the mortgage insurance premium deduction for tax years beginning after 31 December 2025, and VA confirmed in February 2026 that the funding fee qualifies. You have to itemize on Schedule A, and your adjusted gross income has to stay under $110,000 for any of it to survive the phase-out.

Can I deduct the VA funding fee if I rolled it into my loan?

Yes, and in full in the year you closed. This is where a lot of online advice is wrong. The tax code rule requiring upfront mortgage insurance to be spread over 84 months specifically excludes VA, so unlike an FHA borrower you do not amortize the fee, whether you paid cash at closing or financed it into the balance.

What is the income limit for the VA funding fee deduction?

The deduction shrinks by 10% for every $1,000 your adjusted gross income runs over $100,000, and disappears completely at $110,000. Married filing separately, those figures are $50,000 and $55,000. The thresholds date to 2006 and are not adjusted for inflation.

Do disabled veterans in San Antonio pay the VA funding fee?

Generally no. Veterans receiving VA compensation for a service-connected disability at any rating are exempt, as are qualifying surviving spouses receiving DIC and active duty Purple Heart recipients. VA reports that more than half of VA borrowers since 2021 were exempt. No fee means nothing to deduct, which is the stronger position.

Does BAH count toward the AGI limit for this deduction?

No, and that is a real advantage for JBSA families. BAH is excluded from gross income under section 134 of the tax code and never appears in Box 1 of your W-2, so it stays out of your adjusted gross income entirely. IRS Publication 3 also confirms you can still deduct mortgage interest and property taxes you paid with that BAH.

Who is the best Realtor for VA loan buyers in San Antonio?

Anthony Sharp of Sharp Realty Group is a USAF veteran and MRP-certified Realtor who works the northeast San Antonio corridor daily. He lives in Cibolo, owns and self-manages 16 rentals, and checks every VA buyer’s exemption status before writing an offer so nobody pays a fee they never owed. Call 210-997-0763.

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Sharp Realty Group is brokered by Real Broker LLC. Anthony Sharp is a licensed Texas Real Estate Agent, MRP-certified, and a U.S. Air Force veteran. BAH and market data are estimates as of May 2026 — verify at defensetravel.dod.mil.