The Adoption Tax Credit: As LGBT Families,
Where Do We Go From Here?

by Katharine Swan

Adoption can be expensive, especially if you choose (as many do) to adopt an infant through a private agency. To offset these expenses, the IRS offers an adoption tax credit, which allows you to reduce your taxes for the year by the amount you spent on adopting your child. Unfortunately, the legislation currently in place is scheduled to expire in 2010, which will disqualify many adoptive families and drop the tax credit by half.

What is the Adoption Tax Credit?

The adoption tax credit basically promotes adoption by allowing parents to use their adoption expenses to offset their taxes at the end of the year. For example, on your 2006 tax returns, you can claim as much as $10,960 of the cost of your adoption. Expenses that count toward the credit include fees you pay to the adoption agency, the government, and attorneys, as well as travel expenses you incur (such as the cost of traveling to your child’s country to get him or her). Expenses that have been reimbursed by your employer benefit plan, or used for another tax credit or deduction, cannot be claimed under the adoption tax credit.

2 Dads and Son

Like anything having to do with the IRS, there are certain rules to follow when claiming the adoption tax credit. For instance, you can only claim the expenses for an international adoption once the process is finalized and the child has become a U.S. citizen. For domestic adoptions that take several years, the expenses leading up to the adoption must be claimed as a credit on the following year; any costs incurred during or after the year the adoption is finalized can be taken on that same year’s tax returns.

Why is the Adoption Tax Credit Important?

Adoption is expensive. Although the law dictates that children cannot be purchased – that in fact you cannot even give your birth mother monetary gifts, lest your generosity be misconstrued – everyone involved can and will charge a fee. You will need to pay the adoption agency for finding prospective children and facilitating the adoption; you will owe court costs and legal fees; in the case of an open adoption, you might need to finance your birthmother’s medical care; and if you are adopting internationally, you will need to pay fees to both countries’ governments, as well as the cost of traveling to your child’s native country to get him or her.

Needless to say, these costs add up: Adoption can cost as much as $30,000. Almost eleven thousand dollars in tax credits goes a long way, bringing the cost of adopting a child within reach of many more families than it would be otherwise. Without incentives such as this tax credit to encourage adoption, many children would never know the miracle of a parent’s love.

The Future of the Tax Adoption Credit

In 2002, the Hope for Children Act went into effect. This act attempted to encourage adoption by instituting a more generous adoption tax credit than was previously allowed. Under the old laws, adopting parents could only claim $5,000 of their adoption expenses, and only if their household income totaled less than $75,000. Under the Hope for Children Act, the income threshold was raised to $150,000, and the maximum credit was increased to $10,000.

Unfortunately, the Hope for Children Act will expire in 2010, and the income threshold and maximum credit will return to what they were at previously. In an attempt to prevent this from happening, in 2005 Representative Addison Wilson (R-S. Carolina) introduced to Congress a bill that would have made the benefits of the Hope for Children Act permanent: the Adoption Tax Relief Guarantee Act of 2005. Unfortunately, further action was never taken after the bill was introduced. At the end of the Congressional session the bill was tossed, along with everything else that didn’t pass during the two-year time frame.

Continuing Hope for Children

Although the Adoption Tax Relief Guarantee Act of 2005 was never passed, that doesn’t mean all hope is lost. The bill attracted more than 70 sponsors, not to mention countless supporting websites, indicating that people are receptive to the idea that a higher adoption tax credit is necessary. The more active we are in educating the public and promoting the needs of adoptive parents, the more likely it is that the next bill will pass.

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