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Adopt A Child Adoption Tax Credit
Below is a brief overview of the adoption
tax credit. Here are the instructions
for preparing your taxes and claiming this tax credit. (You will need
Acrobat Reader to view this file.). For complete details, please consult your
tax preparer.
- What is the Hope For Children Act?
- When does the $10,000 adoption tax credit go into effect?
- What are qualified adoption expenses?
- Who qualifies for the tax credit?
- Do all adoptions qualify for the $10,000 tax credit?
- Can adoption expenses incurred prior to 2002 qualify for the $10,000 tax credit if the adoption is finalized in 2002?
- What about special needs adoptions?
- How does the $10,000 tax credit work for international adoptions?
- Can families claim the full credit over multiple years?
- Please Note
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Q. What is the Hope For Children Act?
A. The Hope for Children Act (Public Law 107-16) increases the previous $5,000 adoption tax credit for "qualifying adoption expenses" to $10,000. It also increases the employer adoption assistance exclusion to $10,000.
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Q. When does the $10,000 adoption tax credit go into effect?
A. The Hope for Children Act is effective January 1, 2002. (For taxes filed in 2002.)
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Q. What are qualified adoption expenses?
A. According to the IRS: "Reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including meals & lodging) and other expenses related to, and whose principal purpose is for, the legal adoption of an eligible child."
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Q. Who qualifies for the tax credit?
A. Persons with modified adjusted gross incomes of $150,000 or less, phasing out for modified adjusted gross incomes up to $190,000.
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Q. Do all adoptions qualify for the $10,000 tax credit?
A. Non-special needs domestic adoptions and FINALIZED international adoptions qualify.
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Q. Can adoption expenses incurred prior to 2002 qualify for the $10,000 tax credit if the adoption is finalized in 2002?
A. If it is a domestic non-special needs adoptions, then no, qualifying for the tax credit is not contingent on finalization. Expenses paid or incurred prior to January 1, 2002 are limited to $5,000. If it is an international adoptions, then yes, overseas adoptions must be finalized in order to be legal and deemed a U.S. citizen.
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Q. What about special needs adoptions?
A. Domestic special needs adoptions remain at the current $6,000 tax credit. January 1, 2003, it increases to $10,000 (legislation has been introduced to bring equity to special needs adoption regarding the tax credit). Domestic special needs adoptions are defined as children who are U.S. citizens and determined by the state of residence to qualify for financial subsidy for adoption.
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Q. How does the $10,000 tax credit work for international adoptions?
A. International adoptions must be finalized. While some adoptions are finalized in the child's country of birth, state law in the United States governing finalization varies. All states do not recognize "adoption finalization" overseas, requiring families in those states to re-finalize the adoption to qualify for the tax credit.
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Q. Can families claim the full credit over multiple years?
A. Yes, the credit can be applied against tax liability over six years or whenever expenses reach the $10,000 cap, whichever comes first.
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Please Note
The IRS states that the 968 Publication will be similar with changes in language to reflect the $10,000 tax credit.
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1 AHH does not warrant the National Adoption Foundation program; we just make it known to you.
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