There is good news for people who are planning to adopt a child. Two tax benefits offset the escalating expenses of adopting an eligible child.
In 2010, the adoption credit, which is fully refundable, rose to a maximum of $13,170 per child. Parents who work for companies with an Adoption Assistance Program can receive up to a $13,170 reimbursement from their employer for qualified adoption expenses without paying taxes on that benefit.
This benefit phases out for modified AGIs between $182,520 and $222,520. The credit or exclusion can be fully claimed if modified AGI is less than $182,520 and it cannot be claimed if modified AGI is equal to $222,520.
When you adopt a child with special needs, you are allowed to claim these benefits regardless of actual expenses paid or incurred in the year the adoption becomes final. You are assumed to have incurred the maximum amount of qualifying expenses and may claim the full credit.
When adopting a child from within the United States, the family is permitted to take the credit in the year following the year where the actual expense was incurred. These expenses are deductible even if the adoption ultimately is not completed. This is different from how adoption expenses are treated if the child is from outside the United States.
Where a foreign adoption is involved, the family may not deduct any expenses until the adoption is final, which considering the time and uncertainty of a foreign adoption, places an added burden on the family financing the cost of the adoption. Clearly, in this situation, the longer the adoption process, the more expenses are incurred, none of which are deductible until the adoption is finalized.
