As a surrogacy attorney who helps hopeful parents navigate both the legal and financial complexities of building a family via assisted reproductive technologies, the IRS’s recent determination letter is important – and in some respects, disappointing, but also clarifying. (The Tax Adviser)
What’s New — What’s Still Deductible
On May 2, 2025, the IRS issued a determination (Letter Ruling 202518023) under Internal Revenue Code § 213 (Sec. 213), clarifying that certain costs associated with fertility treatments – specifically when the treatments are performed on the taxpayer or their spouse – may qualify for medical expense deductions. (The Tax Adviser)
Specifically, the IRS agreed that expenditures such as fertility screenings, medication, hormone treatments, and egg or sperm retrieval, when incurred by the taxpayer or spouse, are deductible as “medical care” – because they directly affect the structure or function of the body, which is the language used in § 213(d)(1)(A). (The Tax Adviser)
Put simply: if you or your spouse undergo the IVF process directly – not through a third-party gestational carrier – those IVF-related costs may help reduce your taxable income (to the extent they exceed 7.5% of your adjusted gross income for the year). (The Tax Adviser)
What Doesn’t Qualify – Surrogacy Expenses Remain Non-Deductible
Where this ruling draws a firm line – and where many intended parents will be disappointed – is in the treatment of surrogacy-related expenses. The IRS unequivocally denied deduction claims for costs associated with a gestational carrier (surrogate), because under § 213, deductible “medical care” must be for the taxpayer, their spouse, or a dependent. A surrogate is a third party, and thus surrogacy-related medical care, compensation, insurance premiums, legal and agency fees, and childbirth costs do not qualify. (The Tax Adviser)
Even when a third-party gestational carrier is medically necessary – for example, due to a health condition in one of the intended parents – the IRS treats the surrogate’s care as outside the scope of deductible medical expenses. (The Tax Adviser)
Legal Background: Why This Isn’t Surprising – But Still Important
This IRS stance aligns with prior court rulings, including Magdalin v. Commissioner (T.C. Memo. 2008-293, aff’d 1st Cir. 2009) and Morrissey v. United States (871 F.3d 1260 (11th Cir. 2017)). In those cases, courts denied deductions when the procedures benefited someone other than the taxpayer — or where the taxpayer didn’t have a medically required condition. (The Tax Adviser)
What makes the 2025 determination letter noteworthy is that it applies to a situation more favorable to intended parents: a heterosexual married couple where one spouse had a documented medical condition precluding carrying a pregnancy safely, prompting use of a surrogate. But even in that medically necessary surrogacy context, the IRS refused to treat surrogacy expenses as deductible. (The Tax Adviser)
In doing so, the IRS has clarified its interpretive framework under Sec. 213 – relying not on the medical necessity or purpose of the overall plan, but strictly on who receives the medical care.
Practical Advice for Intended Parents & Their Advisors
As someone who often works with intended parents, here’s what this ruling means day-to-day:
- Be meticulous about documentation. If you or your spouse undergo IVF directly, keep detailed, itemized records (invoices, receipts) for every stage – fertility work-ups, medication, egg/sperm retrieval, lab or storage fees, etc.
- Segregate expenses carefully. When using a surrogate, distinctly categorize expenses: IVF-related costs (which may be deductible) vs. surrogate-related costs (which are not).
- Plan ahead, but don’t expect surrogacy deductions. If you were hoping to deduct the surrogate’s compensation, medical insurance, or childbirth costs – don’t count on it. The IRS has clearly rejected those claims in this ruling.
- Consult your tax and legal team early. Given the complexity and personal financial stakes – especially with surrogacy costs often reaching tens of thousands of dollars – coordinated advice from your surrogacy attorney and a qualified tax professional can help maximize what deductions are available and avoid IRS problems.
What This Means for the Future of Surrogacy & Tax Planning
From a surrogacy-attorney’s viewpoint, this ruling is a mixed bag. On one hand, it offers clarity and hope for those undergoing IVF themselves: some relief from the high costs of fertility treatment may be obtainable via tax deductions. On the other hand – and perhaps more importantly for many of the clients I see – it reaffirms that surrogacy remains a major out-of-pocket expense, for which no IRS deduction should be assumed.
In practical terms, that means intended parents need to treat surrogacy as a financial commitment likely unmitigated by tax deductions – and structure their budgets accordingly. For many, this may influence choices between IVF with a surrogate, adoption, or other paths to parenthood.
Finally, this ruling underlines just how out-of-step parts of the tax code remain with modern family-building realities. As long as the law defines “medical care” under Sec. 213 in terms that exclude third-party gestational carriers, surrogacy will remain largely non-deductible – a reality that lawmakers (not just IRS) may eventually need to address if assisted reproduction continues to grow in prevalence.
