The so-called “fiscal cliff” bill signed by President Obama didn’t fully please either political party, but it did contain great news for the adoption community by maintaining a tax credit that makes adoption more affordable for low- and middle-income families.
The adoption tax credit was set to expire at the end of the year, and for months the adoption community had been lobbying Congress to extend it. The House and Senate made the credit permanent under the bill passed just before the New Year. Unlike a tax deduction, which only reduces taxable income, a tax credit actually reduces a person’s tax liability. Last year, the adoption tax credit was a maximum of $13,360.
Under IRS rules, an adoptive family can claim adoption expenses – court costs and adoption agency fees, among others – up to the maximum amount allowed under the credit. This means, for instance, that if an adoptive family owes $10,000 in federal taxes for a year, and their adoption cost $10,000, then they would owe no taxes for that one year, likely resulting in a large IRS refund. Families have up to five years to obtain the full credit.
Many adoptions, though, cost much more – $20,000 and up is common – and the tax credit simply makes an expensive adoption more affordable. – BP