Are Surrogacy Expenses Tax Deductible?
Bringing a child home is expensive as-is. When using a surrogate, these costs become even higher, which might leave you wondering if surrogacy expenses are deductible. From agency fees and surrogacy compensation to clinic fees and legal costs, surrogacy expenses can quickly add up.
Before you start your surrogacy journey, it’s important to know which types of expenses might be tax-deductible, which is what we’ll cover in this article. Consulting with a qualified accountant, like Kislay Shah CPA PC, is important, especially as deductibility can vary by state.
What Surrogacy Expenses are Tax Deductible?
Most surrogacy expenses are not tax deductible; however, there are a few notable exceptions. Under the Tax Cuts and Jobs Act of 2017 (TCJA), the parent’s ability to claim a tax deduction for certain conception expenses was altered. Medical expenses are deductible on Schedule A if the expenses exceed 7.5% of your Adjusted Gross Income (AGI). The following expenses are eligible:
- Medical fees
- Egg retrieval
- Sperm donation
- Sperm freezing
- IVF-related fees
It’s important to note that expenses paid to surrogates are not included on this list. This is because surrogate expenses are not considered medical procedures performed on the body of intended parents. This means that surrogate compensation, medical bills, insurance, and other costs related to the surrogate process are not deductible. It’s also important to understand that only unreimbursed medical expenses qualify. Any amounts paid by your insurance are not deductible.
Other Options for Deducting Surrogacy Expenses
There is a way to bypass these regulations and deduct surrogacy expenses. A Private Letter Ruling (PLR) is a document issued by the Internal Revenue Service that gives you permission to deduct surrogate-related expenses. It’s a one-time pass to deduct qualifying surrogacy expenses, even though the tax code states something different.
Obtaining a PLR is commonly done with the help of a CPA. The CPA will write a letter to the IRS requesting permission to deduct the expenses. This letter will outline all expenses incurred and why the parents are pursuing surrogacy. The IRS may request evidence that the parents are infertile, such as testing and other documentation. The IRS will then review the case and issue a decision.
If the IRS rules in favor of the PLR, you will be able to deduct all surrogacy expenses, helping you lower your taxable income. The process can take a while, with an average turnaround time of three to six months, which is why it’s important to plan ahead.
Summary
Are you starting your surrogacy journey? If so, now might be the time to consult with a CPA and start drafting your PLR. To learn more about the process, reach out to Kislay Shah CPA PC at or 646-328-1326.