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The Adoption Tax Credit and you

Adoption is not just for the wealthy and Hollywood elite anymore. Adoption is now more affordable then ever with new and improved federal tax credits geared toward promoting adoption among middle income families.

An adoption tax credit for qualified adoption expenses is available to middle income families pursuant to Section 23 of the United States Internal Revenue Code. The adoption tax credit encourages adoption by helping families afford the attorney fees, court costs, and other expenses associated with adoptions and is now more accessible due to new legislation contained in the Health Care and Education Reconcilliation Act of 2010. The Credit does not apply to Stepparent adoptions. Besides the Credit, if your employer paid qualifying adoption expenses, they may be excludable from your gross income.

For purposes of this topic it is best to first differentiate the different types of adoption which could be applicable in a particular matter: 1) The Domestic adoption, an adoption within the U.S.; 2) International adoption — where a child born outside the U.S. is brought into the U.S.to live with the adoptive parents; and 3) the adoption of a special needs child.

There is new legislation on the horizon. In both the Senate and the House of Representatives are Bills that could help promote adoption even further. Thereby promoting adoption for children so as to provide them with better lives and better future. H.R. 213: Adoption Tax Relief Guarantee Act of 2009.

In 2009, the tax credit for adoption was increased amounting to $12,150.00. Now H.R. 3590 includes a provision to extend the adoption tax credit until December 2011 and it has increased tax credit to $13,170.00 for adoptions made after January 2010 and has an adjustment for inflation in 2011. This bill also allows the tax credit to be refundable. However, pursuant to the middle income family tax relief purpose of the Adoption tax credit;If your AGI is more than $182,180.00 then the tax credit amount is phased out and if your AGI is more than $221,180.00 then you cannot claim the tax credit or the exclusion.

In order to qualify, a person seeking to claim the tax creditmust adopt a child and pay the applicable expenses of the adoption, these expenses may include many none qualifying expenses as well as qualifying expenses. Nonqualified expenses are those that violate state or federal law, expenses for carrying out any surrogate parenting arrangement, expenses for the adoption of a spouse’s child (hence, stepparent adoptions do not qualify for the adoption tax credit), expenses for which you have received funds under any federal, state or local program, expenses allowed as a credit or deduction under any other federal income tax rule, expenses paid or reimbursed by your employer or any other person or organization or those paid before 1997. Given the nature and accessiblilty of the adoption tax credit, adoptions become more affordable for middle income families and children in need of a home are now more likely to be adopted by a family. Adoption is a great option for those persons and couples seeking to start a family and who, by biology or gender, cannot produce a child of their own. There are many children in the Unites States and abroad who could use parents and no longer should the cost of adoption alone hinder good parents from adopting good children.


Author’s Note: The above is presented as general information. It is not exhaustive coverage of this issue but only a general explanation from a layperson’s percpective. The purpose of this article is to inform the non-lawyer who may read current status of the adoption tax credit. The reader interested in learning more should contact an attorney licensed to practice law in their jurisdiction, specifically tax law.

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