PLEASE NOTE: Current tax filing for the
2005
tax season provides for $10,960 adoption tax credit. We
strongly recommend adoptive families consult a legal or tax
professional for more details.
The Federal Adoption Tax
Credit for 2007 will be $11,390.
What is the Hope For Children
Act?
The Hope for Children Act (Public
Law 107-16) provides tax credit for
“qualifying adoption expenses” to
$10,960. It also increases
the employer adoption assistance exclusion to $10,000.
When did the Federal adoption tax credit go into effect?
The Hope for Children Act is effective January 1, 2002.
What are ‘qualified adoption expenses?
According to the IRS: “Reasonable and necessary adoption
fees, court costs, attorney fees, traveling expenses (including
meals & lodging) and other expenses related to, and whose
principal purpose is for, the legal adoption of an eligible
child.”
Who qualifies for the tax credit?
Persons with modified adjusted gross incomes of $150,000 or
less, phasing out for modified adjusted gross incomes up to
$190,000.
Do all adoptions qualify for the $10,960 tax credit?
Non-special needs domestic adoptions and FINALIZED
international adoptions qualify.
Overseas adoptions must be finalized in order to be legal and
deemed a U.S. citizen.
What about special needs adoptions?
Domestic special needs adoptions are
defined as children who are U.S. citizens and determined by the
state of residence to qualify for financial subsidy for adoption.
How does the $10,000 tax credit work for international
adoptions?
International adoptions must be finalized. While some
adoptions are finalized in the child’s country of birth, state
law in the United States governing finalization varies. All states
do not recognize “adoption finalization” overseas, requiring
families in those states to re-finalize the adoption to qualify
for the tax credit.
Can families claim the full credit over multiple years?
Yes, the credit can be applied against tax liability over six
years or whenever expenses reach the $10,960 cap, whichever comes
first.
PLEASE NOTE:
The IRS states that the 968 Publication will be similar with
changes in language to reflect the $10,960 tax credit.