Adoption Tax Credit
Please note that the following is general information for the provisions of the adoption tax credit. It should not be used as a definitive source of information. HAPS recommends that you consult a legal or tax professional for details and eligibility, particularly for international adoptions.
The Hope for Children Act which stipulated an adoption tax credit for qualifying adoption expenses (QAE) to $10,000 in 2002, has now increased to $10,630 in 2005. It also increases the employer adoption assistance exclusion to $10,630. Adoptive families may be able to take a tax credit of up to $10,630 for qualifying expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs, even if you do not have any qualifying expenses.
Eligibility: If your modified adjusted gross income (AGI) is more than $159,450, your credit is reduced. If your modified AGI is $199,450 or more, you cannot take the credit. See IRS Publication 607 for details.
The credit can be used for "qualifying adoption expenses" which according to IRS includes "reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and re-adoption expenses to adopt a foreign child."
Both domestic and international adoptions qualify for the tax credit. For domestic adoption, the credit can be taken even if the adoption is not finalized. For international adoptions, the child must be a US citizen in order for you to take the tax credit. From the IRS website:
“(1) If the child receives an IR-2 or an IR-4 visa and enters the United States under a decree of simple adoption, the adoption will be treated as final in the taxable year in which a home state court enters a decree of re-adoption or otherwise recognizes the adoption decree of the foreign-sending country;
(2) If the child receives an IR-3 visa, the adoption will be treated as final in the taxable year in which the competent authority enters the decree of adoption; and
(3) If the child receives an IR-4 visa and enters the United States under a guardianship or legal custody arrangement, the adoption will be treated as final in the taxable year in which a home state court enters a decree of adoption.”
For updated information on the tax credit, please see the IRS web site and search appropriate information:
