An individual or couple can qualify for the adoption tax credit if you adopted a child and paid out-of-pocket expenses relating to the adoption.  The adoption credit is calculated on Form 8839 (Qualified Adoption Expenses).  You may claim an adoption credit of up to $12,170 (for tax year 2010) per eligible child.

Adoption Tax Credit Amounts
  
2009: $12,150
2010: $12,170
2011:  $5,000 or $6,000 for special needs child (projected)

Adoption Tax Credit Phase-Out Ranges

2009:   $182,180-$222,180
2010:   $182,520-$222,520

The credit is reduced based on your modified adjusted gross income. 

The tax credit for adoptions was expanded from $5,000 ($6,000 for special needs adoptions) to $10,000 which was adjusted for inflation.  The expanded tax credit amount was part of the Economic Growth and Tax Relief Reconciliation Act of 2001 and sunsets after the year 2010.  Congress would need to pass a law to prevent the higher tax credit amount from expiring.

To be eligible for the adoption credit, you must:

• Adopt an eligible child
- Any child age 17 or younger or
- A child of any age who is a US citizen or resident alien and who is physically or mentally incapable of caring for themselves.

• Taxpayers who adopt a special needs child can claim the full amount of the adoption credit without regard to the actual expenses paid in the year the adoption becomes final.

• Pay qualified adoption expenses out of your own pocket
-This includes adding up all the expenses related to the adoption that are reasonable and necessary for your adoption.

• Adoption Fees
• Legal Fees
• Court Costs
• Travel Expenses

- Subtraction of any amounts reimbursed or paid for by your employer, government agency, or other organization.

The year that the adoption credit can be claimed depends on when the adoption was finalized and whether the adopted child is a US citizen, resident alien, or foreign national. 

If the child is a US citizen or resident alien then you take the adoption in the following order:

• For expenses paid before the adoption is final, you take the credit in the year the expenses were paid,
• For expenses paid in the same year that the adoption is final, you take the credit in the same year,
• For expenses paid in the year after the finalization of the adoption, you take the credit in the year the expenses were paid.

If the child is a foreign national you take the adoption credit only in the year when the adoption becomes final.  If your adopted child does not have a Social Security Number, you must apply for an Adoption Tax ID Number (ATIN) in order to begin claiming your adopted child as a dependent.

Any adoption credit in excess of you tax liability can be carried forward to the next tax year.  Excess adoption credits can be carried-forward for five years and used up on a first in, first-out basis.

Danette Hefty, EA

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