You Can Get Tax Credit For Adoption Expenses

Adopting a child is such an exciting event -- especially when it's time to bring your new son or daughter home -- but the process can also be expensive.

There are at least a couple ways to counter those expenses. First, check with your employer about assistance, because some companies offer a program to recoup a portion of adoption expenses. Also, come tax time, you may be able to grab an adoption tax credit of up $10,160 of your expenses.

How Does It Work?
While you won't be reimbursed for your expenses, a tax credit could mean reducing your tax liability by as much as $10,160. That's the maximum amount of adoption credit for any type of adoption.

To qualify for the full $10,160 credit, your modified adjusted gross income (AGI) must be less than $152,390. A reduction of the credit will be allowed for modified AGIs ranging from $152,390 to $192,390. You are not eligible however for any of the credit if your AGI is more than $192,390.

If you're adopting a special needs child, you can claim the full $10,160 regardless of the amount spent on adoption expenses.

What Qualify As Adoption Expenses?
Adoption expenses as covered by the credit include all adoption fees, court costs, attorney fees, travel expenses - including meals and lodging while away from home - and other expenses directly related to the legal adoption of an eligible child.

An "eligible" child is one who is either under 18 years old or physically or mentally incapable of self-care. A special-needs child must be a U.S. citizen or resident and must meet his or her state's criteria for special-needs status. States base this status on a variety of factors that include:

• The child's ethnic background

• The child's age

• The child's minority status

• Whether the child has siblings

• Whether the child has a chronic medical condition

• Whether the child has an emotional or physical handicap

Children adopted overseas cannot be considered for special-needs status.

Some Expenses Do Not Qualify
There are several adoption-related expenses that are not allowed under the credit. Here are a few of them:

• Expenses that violate state or federal law

• Expenses associated with surrogate parenting arrangements

• Expenses associated with the adoption of your spouse's child

• Expenses paid with funds received from any government program

• Expenses allowed as a credit or deduction under any other federal income tax rule

• Expenses paid or reimbursed by an employer or someone else

When Should I Claim This Credit?
You have a couple choices, depending on your circumstance. If you're adopting a U.S. child, you must claim the tax credit the year after you incur the expense or the year the adoption becomes final, whichever comes first. For example, if you pay for a home study in 2002 but your adoption isn't finalized until 2003, you claim the adoption credit in 2003.

In the case of a U.S. child, you could claim the credit even if your adoption of the child fails. But if your adoption involves a foreign child, you can take the credit only if the adoption is completed.