As part of year-end financial planning, adoptive parents should consider whether they are eligible for the adoption tax credit.
Adoptive parents can claim a tax credit for “qualified expenses” that are incurred in the course of an adoption. For 2016, the maximum credit remains at $13,460. The credit is inflation-indexed, and is expected to increase to $13,570.00 for 2017.
How adoption tax credits work
The adoption tax credit is intended to offset adoption-related expenses to enable more families to afford an adoption. The credit is a maximum amount, and is compared to the total of the qualified expenses actually incurred. Qualified adoption expenses include home studies, attorney fees, court costs and travel expenses. Surrogacy costs and costs that are reimbursed from an employer or other organization are not qualified adoption expenses. If the adopted child is deemed to have special needs (most often, this will apply to an adoption from foster care, although not every child adopted from foster care is considered special needs), the parent can claim the entire credit regardless of the expenses incurred.
The credit is deducted from the parent’s tax obligation and is phased out for based on the adopting parent’s income. For 2016, the full credit is available for adopting parents who earn up to $201,920.00. Those who earn between $201,920.00 and $241,920.00 in income are eligible for a reduced credit. No tax credit is available for those earning more than $241,920.00.
If the parent’s tax liability is less than the credit, the remaining amount may be carried over for up to five years.
Additional factors for adoption tax credits
The adoption credit is for all adoptions other than stepparent adoptions. For domestic private adoptions, expenses can be claimed the year after they are incurred, even if the adoption is not yet finalized. The credit must be claimed for the year of finalization for special needs and international adoptions. The credit is available for failed domestic adoptions, but not for international adoptions that are not finalized.
heARTbeat is a publication of KingSpry’s Adoption Law and Assisted Reproductive Technology Law Practice Group. It is meant to be informational and does not constitute legal advice.