Adoption Tax Credit

Are you considering adopting a child?

Adopting a child can be truly rewarding, but the process can be expensive.  However, the cost can be partially offset through the Adoption Tax Credit.

For 2015, families can claim an adoption tax credit worth up to $13,400.  You may qualify for the adoption credit if you adopted a child and paid qualified expenses relating to adoption.  While this tax credit is non-refundable, any unused portion may be carried forward for up to 5 years.

Qualified adoption expenses are reasonable and necessary adoption fees.  They include:

• Court costs;
• Attorney fees;
• Travel expenses; and
• Other expenses directly related to the legal adoption of an eligible child.

An eligible child is a child under the age of 18 (who is not the child of your spouse or from a surrogate parenting arrangement), or an individual of any age who is physically or mentally incapable of caring for him or herself.

If you are adopting a U.S. child with special needs, you may qualify for the full $13,400 regardless of your actual qualified adoption expenses once the adoption becomes final.

For adopting children without special needs, when you are eligible to claim the adoption tax credit depends both upon whether the child is a U.S. citizen or resident and when the qualified expense is paid.

1. If you are adopting a child who is a U.S. citizen or resident:
• Any qualifying expenses paid before the year the adoption becomes final can be claimed the year after the year of the payment;
• Any qualifying expenses the year the adoption becomes final can be claimed that year; and
• Any qualifying expenses paid after the year the adoption becomes final can be claimed in the year of payment.
2.  If you are adoption a foreign child:
• Any qualifying expenses paid before the year the adoption becomes final cannot be claimed until the year the adoption becomes final;
• Any qualifying expenses paid the year the adoption becomes final can be claimed that year; and
• Any qualifying expenses paid after the year the adoption becomes final can be claimed in the year of payment.

Basically, if you are adopting a child who is a U.S. citizen or resident you can use the qualifying expenses to claim the adoption tax credit even if the adoption does not become final, but if you are adopting a foreign child the adoption must become final.

Additionally, if your employer has a qualified adoption assistance program, any amounts paid to you or on your behalf for the purposes of adopting a child may be excluded from your income.

The adoption tax credit does phase out based upon income.  In 2015, if your modified adjusted gross income is greater than $201,010 it begins to phase out and will be completely phased out when your modified adjusted gross income reaches $241,010.

If you are thinking about adopting a child and would like to learn more about the adoption tax credit, please do not hesitate to send me an e-mail.

As always, I appreciate your feedback in the comments section below.