What is the Adoption Tax Credit?

Building a family through adoption can quickly become very expensive. In 1996, the federal adoption tax credit was first introduced to allow families to deduct qualified adoption expenses from the total amount of taxes they owed. However, this tax credit is non-refundable, meaning that it can only be claimed by families with tax liability. Unfortunately, this generally excludes lower income families from receiving any benefit. In addition, income restrictions mean that families in high tax brackets may receive a reduced credit. Taxpayers who make more than $243,540 or more annually are not eligible to receive the credit, and phaseouts apply for taxpayers with a modified adjusted gross income over $203,540 per annum.

In 2017, the maximum credit has increased to $13,570. Parents adopting special needs children may be able to claim the full amount regardless of actual expenditures.

What Expenses Qualify? 

Qualified expenses are those “reasonable and necessary expenses” directly related to adoption. These include agency/attorney fees, court costs, traveling expenses (including the amounts spent for meals and lodging while away from home), and any other expenses that are “directly related to and for the principal purpose of the legal adoption of an eligible child.”

Questions about the adoption tax credit?  

We highly encourage you to talk to a CPA regarding the specifics of the tax credit you can claim. Don’t have a CPA? We’re happy to put you in touch with a few of our favorite local accountants.