In the past many bills have been introduced to make the adoption tax credit permanent for adoptive parents, but none have been successful until now. As of today, the adoption tax credit is permanent, as a result of the bill to avoid the fiscal cliff. The credit will allow parents to receive up to $10,000 for qualified adoption expenses. At this point it does not appear that the credit will be refundable, but we will continue to monitor this possibility.
On December 31, 2012, the credit was set to decrease from $12,650 (applied to all eligible domestic and international adoptions) to $5,000 (or $6,000 when adopting a child with special needs). We are thrilled that the credit did not decrease to that amount, and instead prospective adoptive parents that adopt will be eligible to receive a tax credit in the amount of up to $10,000. Parents will also be able to exclude funds that they received through employer-assistance adoption programs of up to $10,000 from their income.
According to The Joint Committee On Taxation, this $10,000 credit will apply when parents are adopting children with or without special needs. There had been discussion on this topic previously and there was much speculation that the credit, if reinstated for 2013, would be limited to domestic adoption and/or the adoption of children with special needs only. We are thrilled that the credit is now more inclusive for all adoptive parents that meet the income requirements. The credit and exclusion will start to phase out incrementally for families with a household income that exceeds $150,000.
This is such great news for prospective adoptive parents that are currently in process and those who are thinking about adoption. It is important to families in the process because families can only claim the tax credit or exclusion for international adoptions in the year that the adoption is considered final. Many of our families have been waiting on pins and needles for this news, as we are so happy for them. The news is also extremely important for children in need of families throughout the world and the prospective parents that are currently thinking about adoption. While it is our hope that finances never stop a family from adopting, adoption is expensive, and we know that the fees do stop some families from adopting. We are thankful for yet another way that adoption can become more affordable, so more families may determine that adoption is the right decision for building their family.
We are thankful that in the New Year more children may be able to find loving and permanent homes and that adoptive parents will have more confidence that adoption is affordable for their family.
*A separate article addressing the refundability will be posted tomorrow.
The above is not to be construed as tax advice. Please contact your CPA regarding how the adoption tax credit will impact you. You may also be interested in reading Pamela Smitson, CPA’s blog for more detailed information on how the adoption tax credit has been applied in the past (part 1 and part 2)
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the United States Treasury, we inform you that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of 1) avoiding tax related penalties or 2) promoting, marketing or recommending to another party any transaction or tax-related matters addressed in this communication.
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MLJ Adoptions
MLJ Adoptions is a Non-Profit, Hague-Accredited adoption service provider located in Indianapolis, Indiana, working in Africa, Eastern Europe, Latin America and the Pacific Isles. We are passionate about serving children in need.
MLJ Adoptions
MLJ Adoptions is a Non-Profit, Hague-Accredited adoption service provider located in Indianapolis, Indiana, working in Africa, Eastern Europe, Latin America and the Pacific Isles. We are passionate about serving children in need.