A Legal Foundation For Your Family

Same sex couple denied deduction for surrogacy medical expenses

On Behalf of | Dec 4, 2017 | Assisted Reproduction

While tax season is still a few months away, for those spending money on costly medical procedures, the question of just how much your taxes are going to be and what is going to be deductible is always looming in the background.

For tax purposes, the Internal Revenue Service allows for the deduction of medical expenses for medical expenses incurred to diagnose, cure, treat or prevent an illness or injury. The specific rule is that you can deduct the dollar amount for unreimbursed medical expenses that goes beyond 10 percent of your adjusted gross income. For example, if you make $90,000 a year, you can deduct anything that goes above $9,000 in unreimbursed medical expenses.

While this deduction is beneficial to many couples across the U.S., a recent case highlights the fact that, while there has been much progress in the way of marital and other family-centered rights for same-sex couples, there are still economic discrepancies when it comes to helping these same couples build their families.

Expenses for egg donors and surrogates non-deductible

In this recent case, a man and his partner decided it was time to start a family together through in vitro fertilization (IVF). The plan was to use the man’s sperm and a donor’s egg and then transfer the embryo to a surrogate. All told, over a four year time period, the couple spent more than $100,000 on medical procedures and expenses related to the entire process, which included various fees and expenses for three different egg donors and three different surrogates.

The aggregate amount the couple spent was well over the 10 percent threshold for the deductibility of medical expenses, so, when it came time to file his taxes, the man deducted all the expenses related to his surrogacy process as medical expenses. The IRS contested the man’s deductions, however, and the tax court ultimately denied the deduction. The tax court reasoned that most of the medical procedures had been performed on the egg donors and surrogates, so they were not deductible as medical expenses on the man’s tax return. Since only $1,500 of the expenses were actually tied to medical procedures done to the man – mainly blood tests and sperm collection – the tax court ruled that only that $1,500 could be properly deducted.

Addressing the legalities of same-sex family building

In looking at this story, this is just one more case of how same-sex couples can face additional unexpected hurdles when it comes to family building. Whether it is creating or enforcing parental rights prior to adoption or a child being born, or making sure to establish parentage to protect in the event of a future split or divorce, it is vital for same-sex couples to work closely with an attorney when deciding to move forward with becoming parents. There is simply too much on the line to move forward without legal counsel, and the complex issues that must be considered often come from very unexpected areas – like taxes!