Can I spread out my VA funding Fee as a deduction the same way points can be spread out using the $Amount / 84 months equation?

[blakeman-mark]

Our loan closed on 30 Dec 2016 and our VA funding fee was $4400.  I don't need the entire deduction this year due to my other charitable contributions, and would like to distribute the amount for future tax returns.  Is there a specific equation I have to follow (VA Fee / 84mths (7yrs)) or am I able to use whatever amount I want up until $4400 and the 7 year mark?

[DianeW · Accepted solution]

The IRS publication states the following:

• Qualified mortgage insurance. Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. If provided by the Rural Housing Service, it is commonly known as a guarantee fee. The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. These fees can be deducted fully in 2016 if the mortgage insurance contract was issued in 2016.

There is nothing that specifically states you cannot amortize the fee versus deducting it in full in the year paid. It also doesn't state you must take the fee all in the year paid.  This can be interpreted to allow you the decision to amortize.

[blakeman-mark]

Thank you so Much! This is how I "interpreted" the IRS publication as well. The implication from the last sentence is that the decision to amoritize or to fully deduct is left to be interpreted as to which is more beneficial to the filer. Thanks again!

[DianeW]

@blakeman.mark You're welcome.

[GerryLP]

First, my apologies for reviving this somewhat dated question, But it is 2024, and I realize that the $7,000 dollars tacked on to my mortgage as funding fee, (and which I misunderstood that could not be claimed ever), and I didn't even know it was considered mortgage insurance. 

So similarly to this old question, we purchased our home in September 2017, for a price of $215,000 plus the $7,000 from the funding fee. I knew I never liked the taste it left me because of the financing of the funding fee, and it DID feel as acquired debt. 

Now this question comes up while doing our taxes in the home business portion, and it asks about points, and yada,yada,yada, that squirrel brought me here. 

Have we lost our chance to, and in any way or another, claim the funding fee paid back in 2017? Thanks!

GerryLP

[Opus 17]

The VA funding fee is a form of mortgage insurance.  Mortgage insurance is no longer deductible.  It may have been deductible in 2017 (depending on your income and other factors) but it is too late to file an amended return for 2017.

[GerryLP]

I see. That was such an impactful year for me (retired, married, and bought our house), that I lost sight of it. Well, thank you very much for the response. Water under the bridge; or money down drain, in this case. Thanks again!

GerryLP