VA Funding Fee - Points?

[JohnH]

Client is a military officer who purchased a home last year. On the HUD-1 there is an origination fee and also a separate VA Funding Fee because he purchased with no down payment. The 1098 lists the origination fee as points, but it is silent on the VA Funding Fee.

The VA Funding Fee looks like points to me because it's computed as a percentage of the loan. IRS instructions say "check with the lender", but his lender is saying "check with your tax preparer." Nobody wants to accept any responsibility for the decision.

So now the tax preparer is checking with those whom he really trusts to share their thoughts or experience with how the VA Funding Fee should be treated.

[BP.]

This is mortgage insurance. It is deductible for 2008 loans. See pub 936, p. 7 under Mortgage Insurance Premiums for discussion of VA Funding Fee.

http://www.irs.gov/pub/irs-pdf/p936.pdf

[JohnH]

Wow!
Talk about a reply being "on point"!
Thanks BP

It appears that the tax law giveth and then taketh away. In this case, the taxpayer and spouse's income combined exceeds the $109,000 AGI threshhold, so no deduction is allowed even though the VA Funding Fee is considered Qualified Mortgage Insurance Premiums.