Posts Tagged ‘adoption credit’

We are starting two A to Z series (one for individual taxes and one for entity taxes) which will run through tax season.  We hope to bring you some useful information about the tax world.  As always, if there is a topic you’d like us to write on, please e-mail us your requests!  We love input!

Our first one is A for Adoption Expense.  Adopting a child is a noble act and unfortunately a costly one.  However, you may be eligible for a tax credit if you meet certain criteria.

1. The child must be under the age 18 or
2. Physically or mentally incapable of caring for himself/herself
3. The credit is phased out for taxpayers with a modified Adjusted Gross Income  between $185,210 and $225,210 (tax year 2011) 

 Qualifying expenses include: 

-          Adoption fees

-          Attorney’s fees

-          Court costs

-          Travel expenses

The tax credit is limited to $13,360 (tax year 2011) per child.  You cannot take the credit until the year in which the adoption is final.  You will be required to attach a copy of the adoption order or decree to your tax return.  After the adoption is final, you can take the credit in the year in which you pay the expenses.  Keep in mind, the limitation amount is cumulative for each child.  It is not an annual amount.

Some employers offer adoption assistance programs to their employees (what an incredible benefit if you have this!).   If you receive assistance payments from your employer, the IRS will allow you to exclude up to $13,360 per child from income.  Both the credit and exclusion can be claimed for the same adoption; however, both cannot be claimed for the same expense.  Thus, for example if you spent $30,000, you could exclude $13,360 and take a credit of up to $13, 360.  The limit applies separately to the credit and exclusion if both are taken (meaning you can utilize both the $13,360 credit and the $13,360 exclusion from income.

If an adoption is unsuccessful, the expenses are combined with expenses of a later successful adoption for dollar limits.

If you adopt a special needs child, you are able to claim the full credit of $13,360 even if you don’t have $13,360 in qualified adoption expenses.

NOTE:  Adopting your spouse’s child or costs related to a surrogate parenting arrangement does not qualify for the credit or exclusion.

As always, see a tax professional when dealing with unique situations such as this.  There are additional facts to consider in each case which cannot be covered in one blog.