Because international adoption can be quite expensive, we are fortunate that the US governmnet offers incentives to families that choose to adopt. The following story offers a good summary of the Adoption Tax Credit offered to families that open their hearts and homes to children from around the world.
TAXES & FINANCE: Claim a tax credit for adopting a child
By Jim Angell
Are you thinking about opening your heart and your home by adopting a child? Since the adoption process can be a costly one, the federal government provides some significant financial assistance with the adoption tax credit.
Here are some of the basic rules.
It's important to remember we are talking about a tax credit and not a tax deduction. The adoption tax credit is even more valuable since it can reduce your actual tax liability by up to $12,150 for 2009. Any unused credit can be carried forward five years. The adoption credit can also offset the alternative minimum tax.
Qualifying expenses include agency adoption fees, attorney fees, court costs, and adoption-related travel expenses.
Nonqualifying expenses include fees to a surrogate mother.
The adoption credit is subject to phase-out provisions. For 2009, the credit begins to phase out once modified adjusted gross income reaches $182,180, and the credit is completely eliminated at modified adjusted gross income of $222,180.
The timing of the credit depends on the nature and the progress of the adoption. For domestic adoptions, if the adoption is not finalized by the end of the year, the credit is computed in the second year. For foreign adoptions, the credit is not computed until the year the adoption is finalized.
Special needs adoptions can be eligible for the maximum credit even if actual expenses are less.
Some employers provide adoption financial assistance. These proceeds can generally be excluded from taxable income, but the reimbursed expenses can't also be used to figure the adoption tax credit.
