Can i deduct my va funding fee?

[miamid4]

We purchased a home in 2017 and the va funding fee was applied to the loan. Can we deduct this on our returns?

[Opus 17 · Accepted solution]

Turbotax was updated to allow the deduction for mortgage insurance premiums as of February 22, 2018.  It's included in the entry for mortgage interest.

Remember that the usual rules still apply: there are income limits, and pre-paid lump sum amounts must be spread out over 84 months, you can only deduct the number of months worth that you paid in 2017.  (Up front lump sum amounts for the VA funding fee and Rural Housing Authority are fully deductible, and monthly premiums are fully deductible.)

Also, because the deduction expired at the end of 2016 and was not renewed until 2018, many banks did not report mortgage insurance on their 1098 forms.  If you don't know your PMI or MIP amount, contact your mortgage lender.

[rgwilson9]

Great, thanks. I amended my federal return and have a follow up question. Does the new amount now showing as the federal return due represent the ADDITIONAL funds I can expect to receive, or does that amount include the funds I have already received from the initial return?

[Opus 17]

That depends on how you answer the questions during the interview. If you waited until you got your first refund, and you answered the appropriate questions in the program, then the amount showing now is the amount of additional refund. You can also verify this by following the calculations on form 1040 X.  Remember that to file an amended return you must print and mail to the IRS, a new tax return with the changed information plus the 1040 X which is a cover page summarizing the changes.   The math on the 1040 X is not too complicated and you should be able to follow your original claim, your original refund, and the calculation for the new refund.

[Opus 17]

That deduction expired at the end of 2016.  It's under consideration to be extended by Congress, but nothing has happened recently.

[joepatnic]

Not true.  VA website states it is still deductible

[Opus 17]

VA web site is wrong.  That's why the deduction has been removed from Turbotax.
See page 1 here under "what's new" <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p936.pdf">https://www.irs.gov/pub/irs-pdf/p936.pdf</a>

And see here under (3)(E)(iv)
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/uscode/text/26/163">https://www.law.cornell.edu/uscode/text/26/163</a>

[joepatnic]

Thanks for the help. However, mortgage insurance premium and the VA Funding Fee is different.  You can only deduct if its a VA Funding Fee.

[joepatnic]

I believe the reason why it's been taken out of Turbo Tax is for by definition Box 5 of the 1098 is for Mortgage Insurance Premium. Unfortunately the VA Funding Fee is also associated with that box.

[joepatnic]

I myself am trying to deduct this from my taxes for 2017. I've been back and forth with TurboTax to find out what to do.  So far they are not sure neither. Any help would be appreciated.

[Opus 17]

The VA funding fee is a form of mortgage insurance.  That's the only way it can be deducted, there is no other tax law provision allowing the fee to be a deduction.  The deduction for mortgage insurance has been eliminated.  The entire line 13 on schedule A has been eliminated.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1040sa.pdf">https://www.irs.gov/pub/irs-pdf/f1040sa.pdf</a>

See also page A-8 of the instructions <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i1040sca.pdf">https://www.irs.gov/pub/irs-pdf/i1040sca.pdf</a>

Go back to the internal revenue code,
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/uscode/text/26/163">https://www.law.cornell.edu/uscode/text/26/163</a>

Section (3)(E)(iv) says the deduction for mortgage insurance expired 12/31/16.
Section (4)(E)(i) and (ii) define "Mortgage insurance"

(E) Qualified mortgage insurance: The term “qualified mortgage insurance” means—
(i) mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and
(ii) private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in effect on the date of the enactment of this subparagraph).

Every 2 years Congress passes a 2 year package of tax measures called "extenders" that extend a variety of deductions and tax breaks including some consumer level things like mortgage insurance, and some high level corporation crony things.  They only extend the tax breaks 2 years at a time because that way they don't have to count the long term impact against the deficit.

The extenders were not included in the 2017 Tax Cut and Jobs Act.  So they all officially expired at the end of 2016.  Some in Congress want to revive them, but the bill is stalled and is not being acted on, and at least some congress members don't want to keep passing budget-busting tax breaks 2 years at a time especially at a time when they already had a budget-busting major overhaul.

If the extenders get passed, the IRS will turn them back on, the tax software companies will turn them back on, and things will go back to "normal" until the end of 2018 when they expire again.  You can either wait for the extender law to pass (if it ever does), or you can file without the deduction and then amend to claim the deduction if the law is passed.

I don't care if you don't believe me or not.  Whether you believe me or not, you can't deduct the VA funding fee with Turbotax for 2017.  You can try another software product.

[joepatnic]

I think you care if I believe you. The correct sentence should be, "I don't care if you believe me or not." But its not the point. I'm just trying to get as much deduction I can like any good U.S. citizen would do.  I've used Turbo Tax since 2004. It's easy and affordable. But, if I can save 700$ than I will go somewhere else. Thanks for the help.

[Opus 17]

Since Congress passed an extension of the deduction in the budget they passed in Feb 2018 retroactive to 2017, my answer is now incorrect.  The VA funding fee is once again deductible for 2017.  

However, it will be at least 2-4 weeks for the IRS to reprogram their computers and allow tax software companies to turn the deduction back on.  So you can wait for the program to be updated, or file without the deduction and amend later to claim it.

[rgwilson9]

Will you please let us know when TurboTax turns the deduction back on for 2017 returns? Thanks!

[Opus 17]

Turbotax was updated to allow the deduction for mortgage insurance premiums as of February 22, 2018.  It's included in the entry for mortgage interest.

Remember that the usual rules still apply: there are income limits, and pre-paid lump sum amounts must be spread out over 84 months, you can only deduct the number of months worth that you paid in 2017.  (Up front lump sum amounts for the VA funding fee and Rural Housing Authority are fully deductible, and monthly premiums are fully deductible.)

Also, because the deduction expired at the end of 2016 and was not renewed until 2018, many banks did not report mortgage insurance on their 1098 forms.  If you don't know your PMI or MIP amount, contact your mortgage lender.