Iowa Adoption Credit and Deduction

Image courtesy of user jarmoluk on
Image courtesy of user jarmoluk on

Something new on Iowa tax returns for 2014 is an adoption credit of up to $2,500 for qualifying adoption expenses. The credit works in much the same way as the federal adoption credit.

The Iowa deduction for adoption expenses is also still available, and there is a relationship between the credit and the deduction.

How the Credit and the Deduction Work

Taxpayers who complete a qualifying adoption can take a credit for unreimbursed adoption expenses, up to $2,500. Expenses beyond $2,500 may be taken as an itemized deduction if the total of those expenses is more than 3% of the taxpayer’s net Iowa income (line 26 of the Iowa 1040).


Joe and Joan adopt a child. They spend $7,000 on the adoption. Their net income is $100,000. They can take $2,500 as a credit on their Iowa return. Step 2 is to calculate the itemized deduction. 3% x $100,000 = $3,000.

Expenses beyond $3,000 are eligible for an itemized deduction, so in this case, the Joe and Joan are eligible for a $4,000 itemized deduction. BUT … the $4,000 is reduced by the amount of adoption credit claimed. $4,000 – $2,500 = $1,500 that can be taken as an itemized deduction.

Is the Credit Limited By the 3% Rule?

It doesn’t appear so. The credit is available regardless of income level. It’s the deduction that’s limited by income.

For further reading, see the expanded instructions to the Iowa 1040