I figured I would take a break from some of the "heavy" topics I have been hitting lately and go back to my Transracial Adoption ABCs for a short while. I am up to the letter "T".

Tax Credit - Before you read any further, please understand that taxes are complicated, and I am no where near an expert on this. I don't even do my own taxes (my Dad's accountant does). So take this information as basic and as a starting point, and do your research, and when in doubt, contact a tax professional (preferably one who has experience with the adoption tax credit).

The tax credit is a credit that lowers your federal tax liability (what you owe) by the amount you paid in qualifying adoption expenses for your adoption, up to a certain amount. The amount for 2006 was $10,960, meaning you could claim up to that much if you met the income guidelines.

"Qualifying adoption expenses" include adoption fees, homestudy fees, immigration fees, travel costs, lawyer and finalization fees, etc.

The credit begins phasing out if your modified adjusted gross income exceeds $164,410. You can't claim the credit at all if you make more than $204,410. The same limits apply to either single adoptive parents or the total income of married couples filing jointly.

For some families, the tax credit works out very well, and results in them getting a large amount of money back. For other families, especially ones who have very low tax liabilities due to large family size or other reasons, the tax credit does not offer much financial help.

The credit can be spread out over up to five years, meaning if you spent the $10,000 for your adoption but only are responsible for $2000 in taxes each year, you can claim the credit for five years, until it is all used up.

The tax credit can be used for domestic adoptions and for international adoptions, however there are different rules as to when you can apply the credit. For domestic adoptions, the credit can be used even if the adoption is not completed. For international adoptions, the credit is taken in the year that the adoption is final. For special needs adoptions, you can claim the full credit amount, even if your expenses were not that much.

You should note that you can claim expenses that were paid for you by someone else.



See, I told you it was complicated!

Here are some websites to find more detailed information, but again, I highly recommend finding a tax professional to help you figure out what benefit the adoption tax credit can offer your family.

The Adoption Tax Credit

How to Claim the Adoption Tax Credit

IRS Tax Topics- Topic 607 - Adoption Credit