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.
