One of the things that you can count on with US tax law is that tax policy favors those who “do the right thing.” Charitable donations, education expenses, medical care, etc. are all in one form or another deductible under many circumstances.
The Adoption Tax Credit falls in the same class, those favored by the government because the taxpayer does the right thing.
The Adoption Tax Credit is a credit rather than a deduction. The distinction is that a tax credit reimburse you for the entire amount that you paid if the “rules” are adhered to. In fact most “tax credits” have a defined set of requirements in order for the taxpayer to take the credit.
The adoption tax credit reimbursed a taxpayer for 100% of eligible adoption expenses, up to $13,400. Any amount in excess of this is not deductible. There are two conditions that must be met for the taxpayer to claim this credit:
- the taxpayer must pay for “qualified” adoption expenses
- the taxpayers modified adjusted gross income cannot exceed a specific amount
Married couples must also file jointly unless they are legally separated or have lived apart for the last six months.
There is one specific provision in the adoption tax credit that favors “special-needs children.” If you adopt a child, and your state has determined that the child has special needs, the credit paid back to you is $13,400 regardless of how much you actually spent on the adoption.
Like many tax credits and tax deductions their income phase-outs beyond which the credit or deduction is no longer available. Taxpayers with modified adjusted gross income of $201,010, face no phase-out. Beyond this the deduction starts to phase out and is completely eliminated if the taxpayer has a modified adjusted gross income of $241,010 or more.
If you want to know more about the Adoption Tax Credit, please post a question below.