Lerse.com -- Home and Family Tips

Can you put a price on your personal happiness?  Of course not.  So if you're thinking of adopting a child, money is likely the last thing on your mind.  But the truth is, legal adoption can carry a significant price tag. 

In the past, adoption was a dream that would never come true for many, simply because they couldn't afford to pay the associated costs.  Becoming a parent was a luxury that only the rich and famous could afford.  In order to curb this "money can buy me love" trend, the government created certain acts to keep the adoption process at a more affordable level.  Of these acts, the Adoption Tax Credit has made a particular impact on the lives of thousands of new families.

The Adoption Tax Credit is a tax law provision available to middle-income families.  While complicated, the Adoption Tax Credit can be a valuable benefit for families and couples who wish to adopt.

Like all tax breaks, the Adoption Tax Credit is an amount that is subtracted from your tax liability.  In order to offset the high costs associated with adopting a child, the tax credit is made available to adopting families for the year following the year in which the expenses are paid.   If you are a taxpaying citizen who adopts a child this year, you may be entitled to claim the Adoption Tax Credit when you file your next income tax return.  The credit will help to pay for adoption fees and expenses, but will not be available for any refunded costs.

Which Expenses are Covered?

To fully understand the nature of the Adoption Tax Credit law, you need to know which expenses will be covered.  You should also realize the credit amounts may fluctuate depending on other credits you've received.  For example, if your employee benefits pay some of the fees, then you won't be able to claim these same fees as tax credits.

The Adoption Tax Credit usually applies to both domestic and international adoptions.  However, the procedures involved in these two main forms of adoption differ greatly.  For international adoptions, the tax credit can be claimed only after the adoption has been finalized.  For domestic adoptions, however, the tax credit can be claimed even if the adoption has not yet gone through the finalization process.

The law mandates that the maximum amount that can be claimed as an Adoption Tax Credit is $10,630 per child.  Even if your expenses total more than $10,630, your entitlement remains the same.  A full credit is available for domestic adoptions, however parents choosing international adoption are only entitled to a partial credit.  If you adopt a child through the domestic process, you'll only receive full entitlement if your expenses exceed the set limit.

Who Qualifies?

In order to claim the Adoption Tax Credit, the adoptive parent must submit any expenses that qualify.  Under the tax code, "qualified expenses" are defined as those that are "reasonable and necessary", and directly associated with the legal adoption of an eligible child.  These qualified expenses include court costs, attorney fees and costs associated with travel.

Under tax laws, an "eligible child" is under the age of 18, or is mentally or physically incapable of caring for him or herself.   There are other Adoption Tax Credit rules in place for children with special needs, children who are US citizens or residents and cannot be returned to their parents' residence, and those who are may not be available for adoption with the absence of assistance due to certain conditions or factors.

While money can't buy happiness, having a little extra in your pocket can certainly help to brighten life with your new child.