As National Adoption Month closes and the new year fast approaches, many prospective and successful adoptive parents have questions about the Adoption Tax Credit. Anna Bahney, a contributor at Forbes, has broken down the most common questions regarding the credit:
What Is The Tax Credit?
The tax credit for adoptions finalized in 2014, is $13,190 per child.
It is not a refundable credit, meaning that taxpayers only receive the credit against a federal income tax liability and that tax payment may be reduced to, but not below, zero.
This credit is designed to offset what the IRS determines to be “qualified adoption expenses,” enabling families who might not otherwise be able to adopt to do so. These expenses include reasonable and necessary adoption fees like court costs, attorney fees and traveling expenses (including food and lodging).
The expenses do not include payments for adopting a spouse’s child, paying for a surrogate parenting arrangement or expenses already paid or reimbursed by an employer. Expenses incurred during an international adoption can only be claimed when the adoption of the foreign child becomes final.
Who Can Claim The Credit?
Parents who are eligible must have adopted a child in 2014 who is under 18 or who is physically or mentally unable to take care of him- or herself. The family also must be within the income guidelines.
Families with a modified adjusted gross income of:
- Below $197,880…………..Full Credit
- $197,880-$237,880…….Partial Credit
- Above $237,880………….No Credit
When To Claim the Credit?
Parents adopting a child from the U.S. can claim qualified adoption expenses the year after they spent the funds. The families adopting a special needs child can claim the credit in the year the adoption is finalized. Those adopting a special needs child can claim the credit in the year the adoption is finalized.
Additionally, it is important to note that a family who has attempted to adopt a child who is a citizen or resident of the United States (or U.S. possessed territories) when the adoption process began may be able to claim the tax credit, even if the adoption does not become final. A family who adopts a child with special needs qualifies for the full Adoption Credit, even if there are little or no expenses, once the adoption becomes finalized. A child is considered “special needs” if he or she fits the criteria outlined by the IRS, which can be found HERE