There are two Adoption Benefits available:

1. A nonrefundable credit of up to $12970

Qualified adoption expenses can reduce your tax liability to zero but if the credit exceeds the tax liability the taxpayer is not provided a refund of excess adoption expenses

2. An exclusion from income of up to $12970 for qualified expenses paid for by an employer under an adoption assistance program (check with your employer to determine if they provide this benefit)

Employer Adoption Assistance is included on the W-2 but is excluded from taxable income

Qualified Expenses can include:

  1. Adoption Fees
  2. Court Costs
  3. Attorney Fees
  4. Travel, including meals and lodging while away from home
  5. Re-adoption expenses to adopt a foreign child under state law

Qualified Expenses do NOT include:

  1. Any expenses which may be a violation of Federal Law
  2. incurred in surrogate parenting arrangements
  3. incurred while adopting a spouse’s child
  4. Paid using Federal, State or local program funds
  5. Claimed as a deduction or credit elsewhere on the tax return

Example:
In 2012 Jim and Kelly, who live in Georgia, adopt a child born in California:

Expenses incurred:

  • $7420 in fees to the adoption agency
  • $600 in kennel fee’s for the birth mother’s dog while she was in the hospital
  • $765 in court and attorney’s fees
  • $1100 in supplies for the new baby (i.e. baby clothes, crib, safety supplies, etc..)
  • $1440 in travel expenses, including airfare, rental car, hotels and meals to pick up the child

Total deductible expenses:

$7420
$765
+$1440
$9625

Total Non Deductible Expenses:

$600
+$1100
$1700

These deductible expenses would be applied to the 2012 tax year as long as the adoption was finalized in 2012.

If you have specific questions about the adoption tax credit or adoption please give us a call. The partners in our office have adopted a total of six children, we have been in your shoes let us help.