The financial cliff deal of 2013 signed by President Obama contains tax benefits for adoptive families. The adoption tax credit was set to expire at the end of 2012. However, as part of the financial cliff deal of 2013, the adoption tax credit was made permanent starting with 2012 tax filings.
For the year 2012, adoptive families are eligible for a tax credit of up to $12,650.00 for qualified expenses. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses, and other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.
Keep in mind that the adoption tax credit is just that a “tax credit” and not a “tax refund”. Therefore, the adoption tax credit only helps certain families who meet income guidelines and have tax liability. This tax credit of $12,650.00 is nonrefundable and simply offsets tax liability if you owe the IRS. So if your tax liability is less than $12,650.00, you are not eligible to get the adoption tax credit.
For income and dollar limitations to qualify for the adoption credit, please consult a tax expert and/or www.irs.gov/taxtopics/tc607.html.
While an adoption tax credit is certainly more beneficial to adoptive families in higher income brackets, there continues to be a benefit for adoptive families from lower income brackets. According to the IRS, families from lower income tax brackets tend to adopt more children from foster care. Many children adopted from foster care have been determined by their particular state to have “special needs”. Generally, special needs adoptions are the adoptions of children whom the state’s child welfare agency considers difficult to place for adoption. Most foster care adoptions are special needs adoptions. Therefore, if you have adopted a child determined to have special needs through your state’s child welfare agency, you may still be eligible for the maximum amount of credit, even if you paid no qualified expenses.
The information in this blog is meant for informational purposes and is not legal tax advice. Moreover, the information in this blog is not meant to take the place of professional advice from a tax consultant, expert, or tax attorney. If you believe that you might be impacted by the adoption tax credit, please contact a tax expert to discuss.