Adoption Tax Credit

You may be entitled for a tax credit if you pay qualifying expenditures to adopt an eligible kid. The credit is normally available the year after the year in which the costs are paid.

You may be entitled for a tax credit if you pay qualifying expenditures to adopt an eligible kid. First, inquire about aid from your job, since some firms provide a program to reimburse a percentage of adoption costs. Although the Adoption Credit does not apply to reimbursed expenditures, some amounts paid by your employer for eligible adoption expenses may be deducted from your gross income. The adoption credit has been increased for 2010 through 2012 and is now refundable. Your credit is determined on IRS Form 8839 Qualified Adoption Expenses if you qualify.

How does it function?

For any form of adoption, the Adoption Credit may lower your tax burden by up to $13,170. You may claim a credit as well as an exclusion for the costs of adopting an eligible kid. In other words, you may be eligible for a credit of up to $13,170 as well as an income exclusion of up to $13,170. You cannot, however, claim both a credit and an exclusion for the same cost.

To be eligible for the credit, you must:

You must adopt a kid who is eligible.
You must cover eligible adoption costs.

If your modified adjusted gross income is between $182,180 and $222,180, the credit and exclusion are lowered. If your modified adjusted gross income is $222,180 or above, you cannot claim either the credit or the exclusion.

Is my kid qualified?

A youngster who is under the age of 18 or who is physically or mentally incapable of caring for themselves is considered eligible. A special needs child must have been a U.S. citizen or resident at the time the adoption procedure began, a state must have determined that the child should not be returned to the home of his or her parents, and the state must have determined that the child will not be adopted without state assistance. States make this decision depending on a number of variables, including:

the kid’s ethnic heritage, age, minority status, and whether or not the child has siblings
whether or whether the youngster suffers from a persistent medical condition
if the kid has a mental or physical disability

Which adoption expenditures are eligible?

The credit covers the following adoption expenses:

adoption fees, court charges, attorney fees, and travel expenditures (including meals and lodging while away from home)
additional costs directly associated to the legal adoption of a qualifying child

You cannot deduct more than $13,170 in eligible expenditures in 2010. If you are adopting a special needs kid, consider $13,170 to be the total amount you paid, regardless of how much you really spent.

What costs are not eligible?

A number of adoption-related costs are not qualified for the credit. Some examples are:

expenditures that are illegal under state or federal legislation
Surrogate parenting arrangements incur expenditures.
expenditures related to your spouse’s child’s adoption paid with money obtained from any government program expenses authorized as a credit or deduction under any other federal income tax section
expenditures paid or repaid by an employer or a third party

When should I apply for this credit?

If you are adopting a child from the United States, you must claim the tax credit in the year after the cost or the year the adoption becomes permanent, whichever comes first. For example, if you pay for a home study in 2009 but do not complete your adoption until 2010, you may claim the Adoption Credit in 2010. The credit for expenditures paid in the year after the adoption’s finalization is claimed in the year the expenses were paid.

If you adopt a kid from the United States, you may claim the credit even if the adoption fails. after your adoption includes a foreign kid, you may only claim the credit after the adoption is finalized.

You may claim the credit for a period of more than one year. Assume you paid $500 for a home study to adopt a kid in the United States in 2008, then another $3,000 in court and adoption agency expenses in 2009. If the adoption was not completed until 2010, you might claim a $500 credit in 2009 and a $3,000 credit in 2010. If the adoption was finalized in 2009, you would have received the full $3,500 credit in 2009. However, no credit may be claimed for foreign children until and until the adoption is completed.