Tax Research & Policy: TAX-505-2107
Bill and Amy were married for 5 years when they decided to start a family. In 2013 they tried with no success. In 2014, they sought medical help, and they incurred $20,000 in medical bills for diagnostic testing and infertility. In 2015 they had $65,000 in medical bills through their infertility doctor, and $5,000 in medical bills from their OBGYN for management of Jenny’s pregnancy. In 2016 they had $15,000 in medical and hospital bills for the birth of their child, Charles. Later in 2016, wanting to give Charles a sibling, they spent $3,000 on an adoption attorney.
They also spent $5,000 on installing a fence around their pool and another $5,000 on home repairs so that they could qualify as an adoptive home. In 2017 they adopted two siblings, Darryl, and Ellen, from foster care in their state. They had no other adoption expenses, as the expenses were paid by the state. The siblings qualified for an adoption subsidy, as siblings were harder to place together in their location and this was a special situation. Wanting to grow their family further, in 2018 Bill and Amy contacted an international adoption agency that facilitated adoptions from China. In 2018, Bill and Amy paid $40,000 in travel, fees, and legal expenses relating to the adoption of their daughter, Farrah. Farrah has several medical conditions that, while manageable, meant that she was considered to have high needs. The adoption was not complete until 2019, and they had to pay an additional $10,000 in travel costs and legal expenses to bring their daughter home.
Bill and Amy’s household income (their AGI) is as follows for 2013 – 2019.
Bill and Amy come to you and ask you to identify and explain what (if any) tax deductions, credits, or tax benefits they are eligible for based on their journey above. Make sure you consider each item individually, and consult the IRC and the regulations and any other relevant sources of tax law in organizing your answer. Please write a letter to Bill and Amy. Since these are sophisticated clients, they expect you to cite the appropriate authority in your letter to them.
2013 AGI: 150K
2014 AGI: 155K
2015 AGI: 175K
2016 AGI: 90K (Because of the pregnancy, Amy was unable to work that year)
2017 AGI: 185K
2018 AGI: 205K
2019 AGI: 265K