In early January, Congress passed legislation to avert the “fiscal cliff” and, in doing so, made the tax credit for adoptive families permanent. The adoption tax credit helps thousands of families offset the costs of adoption every year, allowing children to be adopted by loving families that may otherwise be unable to afford it.
The adoption tax credit was first adopted in 1997 and, until now, was annually extended on a year-to-year basis. The maximum 2013 adoption tax credit is set at $12,650 per child and is applicable to any reasonable and necessary adoption costs, such as travel expenses, court fees, and legal costs. The credit is subject to income limitations and is based on a family’s modified adjusted gross income. The credit begins to decrease for families with incomes above roughly $175,000 and does not apply to families with incomes above roughly $225,000. Furthermore, the adoption tax credit only applies to domestic, international, and foster care adoptions – stepparent and surrogacy adoptions do not qualify.
Families who adopt a special needs child may claim the full $12,650 even if their qualified expenses do not reach the maximum amount as stated by law. These families do not need to document adoption expenses for this purpose as long as they pay enough in taxes to claim the credit.
The 2013 adoption tax credit is non-refundable, meaning that unlike some previous years, adoptive parents will not be eligible to recover the difference if their qualified expenses exceed their tax liability. However, if an adoptive parent or family does not have the liability to claim the entire credit at once, they may carry it forward to a future tax year (for up to five years beyond the original claim year).
If you have any questions or concerns regarding adoption and what it may entail, please contact one of the Adoption Specialists at Adoptive Families for Children by calling (603) 228-6712, toll-free at (800) 940-4456, or by e-mailing [email protected]. There is no obligation.