Question

10- Please provide examples

Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $18,750 in 2017 for adoption-related expenses. The adoption was finalized in early 2018. Marsha received $3,850 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 $240,000 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.)

	a. Amount of adoption credit b. Amount of adoption credit

Answer 1

10. a. Adoption tax credits are provided to parents who adopt children so as to encourage adoption. Qualified adoption expenses paid to adopt an eligible child are allowed. At the same time adoption assistance provided by employer is to be excluded.

For the adoptions finalized in the year 2018 the maximum adoption tax credit allowed is $13,810 per child. For adopting the infant boy, Niles and Marsha have paid $18,750 for adoption expenses and Marsha received adoption assistance of $3,850 from her employer. Hence the net adoption expense incurred by them = $18,750 - $3,850 = $14,900.

However since this exceeds the maximum amount allowable as per the federal tax laws, hence the amount of adoption tax credit allowable to Niles and Marsha is $13,810 for 2018.

10.b. The amount of adoption tax credit allowable is phased out based on the MAGI (Modified Adjusted Gross Income) of the taxpayer.

For 2018, the MAGI phase out range is $2,07,140 to $2,47,140. Based on form 8839 for the year 2018, we can calculate the amount of adoption tax credit which can be availed by Niles and Marsha as follows :-

Particulars	$
MAGI for 2018	2,40,000
Lower limit for MAGI phaseout for 2018	2,07,140
Excess MAGI	32,860
Above figure to be divided by $40,000 (A)	0.8215
Qualified adoption expenses allowed as calculated in 10.a above (B)	13,810
(A*B)   (C)	11,345
(B - C)	2,465

Assuming that there is no carry forward credit of prior years, the amount of allowable adoption credit rounded off to the nearest whole dollar amount is $2,465.