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For many, conceiving a child and becoming a parent are lifelong dreams. Unfortunately for some, this dream is being met head on with a massive obstacle, as the issue of infertility in both men and women is very common. According to the National Institute of Child Health and Human Development, approximately 10-15% of all couples in the U.S. struggle with infertility. Fortunately, there are many solutions that can assist those looking to grow their families, such as in-vitro fertilization (IVF), surrogacy and adoption. IVF alone accounts for 5% of births in the metro areas of the U.S. However, none of these options are cheap. For example, IVF can cost up to $200,000 for the entire process. One IVF cycle costs around $20,000, and on average, it takes about 6 cycles to be successful. But there is some good tax news; there are tax rules that can make the financial burden a little easier to handle.

Who can qualify?

First you would have to itemize your tax deductions in lieu of leveraging the standard deduction. An analysis of whether this is beneficial for you should be done with an experienced tax advisor. Once a person decides to itemize, only the portion of the qualified medical expense that exceeds the 7.5% threshold of the taxpayer’s AGI, or adjusted gross income, would qualify for a deduction. The person who is undergoing the fertility treatment, their spouse (if filing jointly), or their dependent can be eligible to claim the deduction as long as they are the one who incurred the expenses. Note, only the amounts that are not covered or reimbursed by insurance would qualify for the deduction.

How to qualify and understanding the qualifying expenses

This may seem intuitive, because no one would choose to undergo a procedure like this without a real medical need, but per the IRS, to qualify, either you, your spouse, or dependent going through the procedure must be deemed infertile. In other words, the procedure must be used to overcome the inability to have children. Such procedures will typically include medical visits, lab tests, lab fees, medications and treatments.

Surrogacy

Another option one may consider when faced with infertility is surrogacy, whereby another woman gets artificially inseminated, and then carries and delivers the baby for the couple. The deductibility in this case is not as clear-cut as with IVF. For one – not everyone that chooses to use a surrogate does so out of a medical necessity. Someone could go this route because they don’t want to be pregnant themselves, or because they are a same-sex couple that cannot biologically produce a baby.  In general, some medical costs and fees directly attributable to the taxpayers can be deductible as long as they can prove that they were unable to naturally conceive children due to infertility. However, for costs relating to the surrogate, the intended parent(s) could seek to obtain a Private Letter Ruling (PLR) from the IRS.  The purpose of the PLR is to get permission from the IRS to deduct specific expenses that are not made clear by law.  Every PLR is assessed on a case-by-case basis and prior PLRs cannot be cited for use in future cases. It may be prudent to call your CPA when approaching this endeavor.

The illustrates a scenario in which the expense deductions related to surrogacy were deemed non-deductible due to the absence of medical infertility in the prospective parents. In 2017, a same-sex male couple sought to deduct expenses incurred for the care and compensation of a woman who was serving as their egg donor and surrogate. The court deemed that since they provided no evidence proving they were medically infertile, despite effectively being infertile as a same-sex couple, their IVF costs were not deductible. This was in line with the IRS’ long-standing position that in order to have these costs deducted a person must be declared medically infertile.

Adoption

An additional avenue that one could take when they want to start a family is adoption. Adoption expenses may be eligible for a tax credit, not a deduction. It’s important to note that the credit is nonrefundable, but any excess over tax liability can be carried forward for up to five years. The adoption credit is applicable to international, domestic, private, and public foster care adoption. However, taxpayers who adopt their spouse’s child are not eligible to claim this credit. The maximum adoption credit that taxpayers can claim on their 2023 tax return is $15,950 per eligible child. For those who adopt in the year , the maximum credit that taxpayers can claim is $16,810. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, and other expenses directly related to the adoption of an eligible child. Naturally, this serves as a primer, and there are many more intricacies related to adoption. For questions that are specific to a given scenario, it is best to speak with an experienced advisor.

The journey to parenthood can be a deeply cherished dream for many individuals and couples. However, prevalent fertility issues have made it necessary for some to explore expensive options such as IVF, surrogacy, and adoption. Although these solutions can come with a high price-tag, your tax professionals are here to help you navigate the tax rules to make these life decisions less financially burdensome. For more information, or to discuss this matter in greater detail, contact your Anchin Relationship Partner or Mi Lam, a tax manager in Anchin’s Matrimonial Advisory practice within Anchin Private Client.