You may be
able to take a tax credit for qualifying expenses paid to adopt an
eligible child (including a child with special needs). The adoption
credit is an amount subtracted from your tax liability. Although the
credit generally is allowed for the year following the year in which
the expenses are paid, a taxpayer who paid qualifying expenses in the
current year for an adoption which became final in the current year,
may be eligible to claim the credit on the current year return. The
adoption credit is not available for any reimbursed expense. In
addition to the credit, certain amounts reimbursed by your employer for
qualifying adoption expenses may be excludable from your gross income.
For both the
credit or the exclusion, qualifying expenses include reasonable and
necessary adoption fees, court costs, attorney fees, traveling expenses
(including amounts spent for meals and lodging while away from home),
and other expenses directly related to and for which the principal
purpose is the legal adoption of an eligible child. An eligible child
must be under 18 years old, or be physically or mentally incapable of
caring for himself or herself. The adoption credit or exclusion cannot
be taken for a child who is not a United States citizen or resident
unless the adoption becomes final. An eligible child is also a child
with special needs if he or she is a United States citizen or resident
and a state determines that the child cannot or should not be returned
to his or her parent's home and probably will not be adopted unless
assistance is provided. Under certain circumstances, the amount of your
qualified adoption expenses may be increased if you adopted an eligible
child with special needs.
The credit
and exclusion for qualifying adoption expenses are each subject to a
dollar limit and an income limit.
Under the
dollar limit the amount of your adoption credit or exclusion is limited
to the dollar limit for that year for each effort to adopt an eligible
child. If you can take both a credit and an exclusion, this dollar
amount applies separately to each. For example, if we assume the dollar
limit for the year is $10,000 and you paid $9,000 in qualifying
adoption expenses for a final adoption, while your employer paid $4,000
of additional qualifying adoption expenses, you may be able to claim a
credit of up to $9,000 and also exclude up to $4,000.
The dollar
limit for a particular year must be reduced by the amount of qualifying
expenses taken into account in previous years for the same adoption
effort.
The income
limit on the adoption credit or exclusion is based on your modified
adjusted gross income (modified AGI). If your modified AGI is below the
beginning phase out amount for the year, the income limit will not
affect your credit or exclusion. If your modified AGI is more than the
beginning phase out amount for the year, your credit or exclusion will
be reduced. If your modified AGI is above the maximum phase out amount
for the year, your credit or exclusion will be eliminated.
Generally, if
you are married, you must file a joint return to take the adoption
credit or exclusion. If your filing status is married filing
separately, you can take the credit or exclusion only if you meet
special requirements.
For
more information on
the subject, consult with your Ronald J.
Cappuccio, J.D., LL.M.(Tax)
at (856) 665-2121.
