Adoption Tax Credits
What is the adoption tax credit?
The adoption tax credit, which can be claimed for eligible adoption-related expenses, has helped thousands of American families offset the high cost of adoption since the credit was established in 1997. The credit applies to all types of adoption (except stepparent adoption), including international, domestic private, and public foster care. Since 2003, families who adopted children with special needs could claim the maximum credit regardless of their qualified adoption expenses. The credit has made adoption a more viable option for many parents who might not otherwise have been able to afford adoption, allowing them to provide children with loving, permanent families.
What is the current status of the adoption tax credit?
The legislation to avoid the fiscal cliff (the American Taxpayer Relief Act of 2012, signed into law on January 2, 2013) included a provision that made the adoption tax credit permanent. It did not make the adoption credit refundable, so it will only benefit those adoptive families who have federal income tax liability.
The credit is still "flat" for special needs adoptions, meaning families who adopt a child with special needs (see special needs question below) do not need to document qualified adoption expenses.
What does it mean that the adoption tax credit is permanent?
A permanent tax credit is one that was extended without a specific expiration or sunset date. Congress can still choose to make changes to the credit in future legislation.
What is the maximum amount of the credit for 2013? At what income level does the credit begin to phase out?
For 2013, the maximum adoption credit and exclusion $12,970 per child. The credit will begin to phase out for families with modified adjusted gross incomes above $194,580 and the credit will go away completely for those with incomes around $234,580.
Since the credit is per child, the maximum you claim depends on the number of children you adopt. If you adopt two children in 2013, your maximum is $12,970 x 2 or $25,940. If you adopt four children, the maximum is $12,970 x 4 or $51,880. For purposes of the tax credit, there is no limitation on the number of children you can adopt.
Can I receive the credit if I adopted a child from another country?
Yes, once the adoption is legally finalized, either in the child's home country or in the U.S., you can claim your qualified adoption expenses, up to the maximum.
Is the tax credit for all adoptions or just special needs? Can I receive the credit if I adopted a healthy child? What kinds of adoptions benefit from the tax credit?
The adoption credit is for all adoptions other than stepparent adoptions (international, domestic private, and public foster care). See below for more information about how special needs adoptions are different.
What are qualified adoption expenses?
The IRS writes: "Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child.
Qualified adoption expenses include:
- Adoption fees,
- Attorney fees,
- Court costs,
- Travel expenses (including meals and lodging) while away from home, and
- Re-adoption expenses relating to the adoption of a foreign child.