As we near the end of the year, all families that have adopted a child in 2009 should be aware of the very favorable tax law provision commonly called the “Adoption Tax Credit” that may be available to them. This tax laws allow an adoptive family a tax related benefit that in most cases results in a refund of all qualifying costs and fees spent on an adoption. The IRS allows a fairly broad definition of “allowed” costs and fees such that in most cases, any and all fees and costs paid to an adoption agency, an attorney helping with an adopt ion, costs paid to or for the benefit of a birth parent and medical costs and related services, are most often allowed. As such, those costs and fees are included in the calculation of the Adoption Tax Credit amount. A tax credit is deducted from the bottom line tax that is owed, so for most families, that reduction in tax means getting some or all of their adoption costs and expenses returned to them in the form of an IRS refund on a dollar-for-dollar basis of the amount allowed. The dollar amount allowed under the law changes each year and it is currently set at $12,150 per child for 2009. This Adoption Tax Credit begins to phase out for those families whose modified adjusted gross income is in excess of $182,180 – and the credit is completely phased out for families with modified adjusted gross incomes of $222,180 or more for 2009. In an adoption of a “special needs” child – usually a child adopted from state foster care – a family can qualify for the full tax credit amount – $12,150 – for each child without having to have paid any costs or expenses. This tax credit is most commonly taken in the year the adoption is finalized, and if it can’t be used up in one tax year, any unused amount can be carried forward to future tax years. The present tax law that allows this Adoption Tax Credit is set to expire at the end of 2010 unless Congress extends it.
The important point for families who have adopted or who are adopting a child in 2009, is to do everything possible to try and have your adoption finalized by the end of 2009 so the Adoption Tax Credit can be taken when the 2009 tax returns are filed in early 2010.
Check with your accountant or call our office for more details regarding the specific application of this adoption tax benefit in your case.