Adoption Tax Credit
What is a tax credit and how much is it?
A credit is a sum deducted from the total amount a taxpayer owes to the government and is not just a simple reduction of income. The Federal Adoption Tax Credit cap for tax year 2011 is $13,170 per eligible child’s adoption. The cap for 2012 will be at least $12,170 but may be indexed for inflation. The credit includes all qualified adoption expenses.
What are qualified adoption expenses?
Reasonable and necessary adoption fees, travel (including lodging and meals), attorney fees, court costs and other expenses related to, and whose principal purpose is for, the legal adoption of an eligible child.
Who qualifies for the tax credit?
An eligible child is age 17 or younger. For 2011, persons with modified adjusted gross incomes of $185,210 or less qualify for the full credit. The credit is then a sliding scale before phasing out at modified adjusted gross incomes of $225,210.
How does the credit work?
The credit for 2010 and 2011 was refundable regardless of tax liability and also covered credits remaining from five previous years. For 2012, the credit can be applied against tax liability for that year or carried forward five years until expenses reach the cap, whichever comes first.
When can the tax credit be claimed?
International adoptions must be finalized. Some adoptions are considered final in the child’s country of origin and others must be completed or re-finalized in the U.S. in order to qualify for the credit.
When does the credit expire?
The adoption credit itself has been extended through the 2012 tax year, but the refundable aspect of the program is not set to continue for that year. The credit will continue to be refundable for tax year 2011.
Additional resources:
Link to IRS topic 607 on the Adoption Tax Credit
http://www.irs.gov/taxtopics/tc607.html
Link to IRS form 8839 pdf to claim the credit
http://www.irs.gov/pub/irs-pdf/f8839.pdf
Link to IRS form 8839 instructions
http://www.irs.gov/pub/irs-pdf/i8839.pdf
Adoptive Families Magazine Articles on Tax Credit
http://www.adoptivefamilies.com/articles.php?aid=377
Additional information about the adoption tax credit can be found here:
http://taxes.about.com/od/deductionscredits/qt/adoptioncredit.htm
Watch a helpful 7 minute video on the tax credit by clicking here.
The above information is intended as a summary and is not a substitute for professional tax or legal advice. Please consult a tax professional about your specific situation.
