The funding fee charged by the Department of Veterans Affairs is fully deductible on Schedule A in the year the mortgage contract was issued, subject to income limitations. The IRS treats the fee as a mortgage insurance premium.
A VA funding fee is deductible whether it is included in the mortgage or paid in full at the closing. The deductible amount is shown in box 4 of Form 1098, Mortgage Interest Statement. If it is not shown on the form, the taxpayer must contact the mortgage insurance issuer. A taxpayer whose adjusted gross income is more than $109,000 (or $54,000 if married filing separate) cannot deduct mortgage insurance premiums or VA funding fees.