Question

Exercise 12-15 (Algorithmic) (LO. 4) In late 2017, Randy and Rachel Erwin paid $7,700 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson. The adoption becomes final in 2018, and the Erwins then pay an additional $8,855in adoption fees. Their 2018 AGI amounts to $196,550.

a. Randy and Rachel are eligible for a $ 13,810 adoption credit in 2018.

b. Assume the same facts but the taxpayer's AGI for 2018 is $220,800. Round any division to three decimal places and round your final answer to the nearest dollar. Randy and Rachel are eligible for a $_______adoption credit in 2018.

Answer 1

Answer -

Step - ( 1 ) - Facts of the case given -

In late 2017, Randy and Rachel Erwin paid $7700 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson.

In 2018, the year in which the adoption becomes final, they pay an additional $8855.

.

Step - ( 2 ) - Relevant Notes on Adoption tax credit -

Note- (1) - Taxpayers who adopt a child can qualify for the adoption tax credit.

Note- (2) - Maximum Adoption Tax Credit is $13810 per child for tax year 2018.

Note- (3) - Adoption Tax Credit is subject to a phaseout, for tax year 2018, the modified adjusted gross income (MAGI) phaseout begins at $207140 and ends at $247140.

.

Step - ( 3 ) - Calculation of amount of Randy's and Rachel's Adoption Tax Credit in 2018 -

Case	Particulars	Explanation	Adoption Tax Credit
a.	When their AGI in 2018 is $196550	Full amount of $13810 Adoption Tax Credit can be claimed, because their MAGI (same as AGI in this case) is below $207140.	$13810
b.	When their AGI in 2018 is $220800	Partial amount of Adoption Tax Credit can be claimed because MAGI (same as AGI in this case) is between $207140 and $247140. So, Adoption Tax Credit = = [($247140-$220800) / ($247140-$207140)] * $13810 = $9094	$9094