Tax Credit is Available for Adoptions

Together you make a family. Is this the year you’ll become an adoptive parent? In addition to the benefits of family togetherness, you might also qualify for a special break on your income tax return. The federal credit for qualified adoption expenses became permanent in January.

As you know, tax credits save you money by reducing the amount you owe dollar-for-dollar. In the case of the adoption credit, you may be able to save up to $12,970 on your 2013 federal income tax return for expenses you pay during the process of adopting a child.

Be aware the credit is subject to a phase-out — that is, the amount you can claim is reduced once your 2013 modified adjusted gross income (MAGI) reaches $194,580. No credit is available when your MAGI is $234,580 or more.

In general, the credit is based on total out-of-pocket expenses including adoption fees, amounts you paid your attorney, court costs, and your meals and lodging while away from home. However, when you adopt a special needs child and qualify for the credit, you can claim the full $12,970, regardless of how much you spent during the adoption process. In addition, you may also be able to exclude from income certain adoption benefits provided by your employer.

The credit is typically available for both foreign and U.S. adoptions. For domestic adoptions, you can claim it even if your attempt to adopt was unsuccessful.

Other tax breaks are also available for new parents. Please contact us if you would like details.