Question

Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $14,750 in 2017 for adoption-related expenses. The adoption was finalized in early 2018. Marsha received $3,050 of employer-provided adoption benefits. For question (a), assume that any adoption credit is not limited by modified AGI or by the amount of tax liability.

1. What amount of adoption credit, if any, can Niles and Marsha take in 2018?
2. Using the information in question (a), assume that their modified AGI was $224,000 in 2018. What amount of adoption credit is allowed in 2018? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Answer 1

1. Amount of adoption credit in 2018:-

• Amount of adoption credit can be upto $13,810 per child or the expense incurred in adoption, whichever is lower

The amount eligible for adoption credit = Expenses incurred - reimbursement by employer

   = $14,750 - $3,050

   = $11,700

2. If the modified AGI is less than $207,140 the whole credit can be taken. But the credit begins to phase out at $207,140 of modified adjusted gross income and phases out entirely at income of $247,140

Since the modified AGI was $224,000.

The credit will be phased out at a percentage:-

13810 / 40000*100 = 34.525%

Phased out credit = ($224,000 - $207,140) * 34.525%

= $5,821

The amount eligible for adoption credit in 2018 = $11,700 - $5,821 =$5,879

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