If you used a VA loan to buy a home in 2026, there's a piece of good news waiting for you at tax time. After a four-year gap, the VA funding fee is once again tax-deductible, and for military families in the Pikes Peak region, that can mean real savings on next year's return.

Here's what changed, who qualifies, and what to watch out for before you file.

A Quick History of the Deduction

The VA funding fee deduction has had a bumpy road:

• 2006 and later: Congress first allowed mortgage insurance premiums, including the VA funding fee, to be deducted for loans originated after 2006.
• 2022 through 2025: The deduction expired and was never renewed, leaving military borrowers without this write-off for four straight tax years.
• 2026: The One Big Beautiful Bill Act permanently restored the mortgage insurance premium deduction, and the VA funding fee is explicitly included as a qualifying premium.

There's also a technical change worth knowing. Instead of appearing as a separate line item on Schedule A, the VA funding fee is now treated as deductible mortgage interest. That should make it easier for tax software and CPAs to catch, since it lives in the same category buyers already expect to see mortgage-related deductions.

Who Qualifies

To claim the deduction, you'll need to meet four conditions:

1. Itemize your deductions rather than take the standard deduction.
2. Use the property as your primary or secondary home.
3. Keep your adjusted gross income under the phase-out threshold.
4. Be legally obligated to pay the mortgage.

That first point matters more than people expect. The standard deduction for 2026 is $16,100 for single filers and $32,200 for married filing jointly, both notably higher than in past years. If your total itemized deductions, mortgage interest, property taxes, and the funding fee together don't clear that bar, itemizing won't actually help you, and the deduction is a non-issue either way. It's worth running the numbers, or having your CPA run them, before assuming you'll benefit.

The Income Phase-Out

The deduction phases out based on adjusted gross income:

A real-world example: A veteran closes on a $350,000 home with a 1.5% VA funding fee, paying $5,250 at closing. If they itemize and their AGI is under $100,000, they can deduct the full amount, potentially saving between $1,155 and $1,890 in federal taxes depending on their bracket.

Paid Upfront vs. Financed Into the Loan

Many buyers roll the funding fee into their mortgage rather than paying it in cash at closing, and this is where the deduction gets more complicated.

• Paid upfront at closing: You can deduct the full amount in the tax year you closed, assuming you meet the other requirements.
• Financed into the loan: Because you didn't pay the full amount in cash that year, the deductible portion is generally limited to what was effectively paid during that tax year, which is often a small share of the total. The IRS treats financed premiums differently from upfront ones, and the rules here get technical fast. This is a conversation to have directly with a CPA rather than assume from a general guide.

The Disability Exemption Most Veterans Don't Know About

Here's a detail that gets missed constantly: if you have a VA disability rating, you may not owe the funding fee at all.

You're exempt from the fee if any of the following apply:

• You're receiving VA compensation for a service-connected disability.
• You're eligible for VA compensation but currently receiving active duty pay or military retirement pay instead.
• You're a surviving spouse receiving Dependency and Indemnity Compensation (DIC).
• You're a Purple Heart recipient on active duty.

There's no minimum rating required. Even a 10% disability rating exempts you from the entire fee, the same as a 100% rating. On a $300,000 loan, that's a savings of $3,750 to $9,900 depending on your down payment and whether it's your first use of VA loan benefits.

And if your disability claim was still pending at closing, your lender was required to collect the fee. If the VA later approves your claim, you're entitled to a full refund, and that refund can also change what you're able to deduct for the year. Worth a call to your lender or the VA to start that process if it applies to you.

Common Mistakes to Avoid

A few filing mistakes show up again and again:

• Taking the standard deduction without checking the math. With the standard deduction higher than ever, it's worth adding up your actual itemized total before assuming either way is better.
• Missing documentation. If your funding fee doesn't show up on Form 1098, pull it from your Closing Disclosure. Don't skip this step, since claiming a deduction without paperwork to back it up can create problems in an audit.
• Treating a financed fee like an upfront one. These are calculated differently, and applying the full financed amount as a single-year deduction is one of the most common errors.
• Overlooking the income phase-out. Even a partial deduction is worth claiming if your AGI puts you in the reduced range.
• Forgetting about refunds. If your disability claim was approved after you already paid the fee, that refund affects your numbers.

The Bottom Line for Colorado Springs Military Families

This is one of those changes that's easy to miss unless someone points it out, and with the Pikes Peak region's concentration of active duty, veteran, and military retiree homeowners, it's worth knowing before you sit down with your tax preparer this year.

Tax rules are complex and specific to each situation, so this isn't a substitute for advice from a qualified CPA. But if you're a veteran or active duty service member thinking about buying in Colorado Springs and want to understand how VA financing, funding fee exemptions, and the numbers behind your purchase actually work, that's a conversation I'm glad to have before you write an offer.