Question

Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and his finalized in 2017. they pay $7000 in 2016 and $7500 in 2017 for qualified adoption expenses. In 2017 , Carl and Jenny have AGI of $150000.

if an amount is zero , enter 0 .
if required , carrycany division out of to four decimal and round final answers to the nearest dollar.
a. what is the adoption credit Carl and Jenny can claim in 2017?
b. How much credit could they claim if adoption falls through and is never finalized.
c. how much credit could they claim if they AGI was $206540?

Answer 1

Answer is explained below.

Step-by-step explanation:

Part A.

As per Topic 607 of IRS, if MAGI amount is below $203,540 for 2017, your credit or exclusion won't be affected by the MAGI phaseout , whereas if your MAGI amount for 2017 is $243,540 or more, your credit or exclusion will be zero. Couple have AGI of $ 150,000. The maximum amount (dollar limit) for credit in 2017 is $ 13570 per child.

Since the couple have incurred more expenses than the limit, credit would be limited to $ 13570 only

Part 2

Zero, as the adoption is of foreign child and it is not successful.

Part 3

AGI $ 206540

Phaseout for 2017 $ 203540

Difference $ 3000

Deduction 3000/40000x 13570 = $ 1017.75

Maximum Credit $ 13570 - $ 1017.75 = $ 12552.25