You may be eligible to deduct a portion of the adoption expenses you paid in 2020 if you incurred adoption expenses during the tax year, even if the child is not placed in Iowa.
Expenses include medical costs relating to the child's birth, any necessary fees, and all other costs connected with the adoption procedure. Include a separate schedule listing the adoption expenses.
This deduction is taken in the year that the expenses are paid even if the child is not placed in your home during that year or if the adoption does not occur.
For tax years beginning on or after January 1, 2014, there is also an Adoption Tax Credit for certain unreimbursed adoption expenses that can be calculated on the IA 177 and taken on line 62 of the IA 1040 for a child placed in Iowa. Qualifying adoption expenses exceeding 3% of total Iowa net income, less any Adoption Tax Credit claimed, are eligible for deduction. Subtract 3% of your total Iowa net income (and your spouse’s, if married) entered on line 26 from the total of qualifying adoption expenses, less any Adoption Tax Credit claimed on IA 1040 Line 62. Enter the result on IA 1040 Schedule A, Line 27.
Example: Taxpayer has Iowa net income of $100,000 and adoption expenses of $10,000. The taxpayer is eligible for an Adoption Tax Credit on line 62 of $5,000.
- $100,000 (net income) x 3% (.03) = $3,000 (expenses not eligible for deduction)
- $10,000 (total adoption expenses) - $5,000 (credit amount) = $5,000 (expenses remaining for possible deduction)
- $5,000 (expenses remaining for possible deduction) - $3,000 (expenses not eligible for deduction) = $2,000 (deduction allowed on line 27 of IA Schedule A)