Andrea and I were fortunate to be invited as guests by then President Bill Clinton to the White House to witness the first signing of the Adoption Tax Credit bill in August, 1997. Since then, it has had its ups and downs, and was set to go out of existence at the end of 2012. However, as Congress debated whether to let the economy go over the fiscal cliff, cooler heads prevailed and the adoption tax credit was made permanent, effective January2, 2013, as part of the Affordable Care Act.
The adoption tax credit is available to adoptive parents in the year that the adoption becomes final, and is reimbursement for qualified adoption expenses. These include reasonable and necessary adoption fees, court costs, attorney fees, agency fees, traveling expenses (including amounts spent for food and lodging while away from home), and for any expenses directly related to the principal purpose of the legal adoption of the eligible child. An eligible child is a child under the age of 18 years old, or be physically or mentally incapable of himself or herself. If you adopt a special needs child, you are able to claim the entire credit, even if your expenses do not meet or exceed the threshold. Further, you will not need to document actual expenses for a special needs child.
The amount of the maximum tax credit, as well as the lower and upper income limits will be adjusted each year in accordance with the cost of living. The maximum credit for 2014 is now $13,190 per child. The full credit is available for modified adjusted gross income (AGI) of $197,880 or less. The credit will completely phased out for AGI over $237,880. The tax credit is non-refundable. This means that if your tax liability is $9000 and your tax credit is $11,000, you will only be able to claim a credit of $9000 and carry over into the next five years the extra $2000.
The Adoption Tax Credit is also available for a failed adoption attempt, although you will need to offset whatever credit you took against any future successful adoption.