How Significant is the Adoption Tax Credit?

If you adopt a child in a fiscal year, you are eligible for an adoption tax credit. You can subtract the credit from your tax liability that year and can claim the credit once the adoption becomes final. If the adoption is not finalized, you will be able to roll over the credit for the following year.

Qualifying Expenses

The credit is a deduction based on expenses incurred in the adoption. These expenses include adoption fees, court costs, attorney fees, traveling expenses and other activities that were directed specifically toward the adoption. Save your receipts when you travel for any adoption-related purpose; even your meals and lodging may be reimbursed. You must be adopting a child under the age of 18, or incapable of taking care of himself or herself.

Yearly and Income Limits

There is a dollar limit each year on adoption reimbursement. If the same adoption stretches over more than one year, the total limit is cumulative, not per year. The limit is based on your modified adjusted gross income. The dollar limit is set each year and is, on average, $10,000 a year. Your employer may also contribute to your effort and file for an exclusion.

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