Taxpayers with certain eligible adoption expenses can benefit at tax time by claiming either a tax credit or, if their adoption expenses are reimbursed by their employer, an income exclusion for the reimbursement. The income exclusion is only available if their employer maintains an adoption assistance program. The credit and exclusion are subject to a dollar limitation and phase-out for taxpayers whose income exceeds certain thresholds.
For 2013, taxpayers can claim a tax credit for up to $12,970 of qualifying adoption expenses. This is not an annual limitation; instead, it applies to the adoption of each child and is cumulative (for that child) over all tax years. When applying the limitation, adoption expenses incurred in an unsuccessful attempt to adopt an eligible child are included with those of the first subsequent successful adoption. The limitation is the same for both married and unmarried taxpayers, but married couples must file a joint return to claim the credit.
The credit for an adoption involving a child with special needs that becomes final in the tax year is automatically $12,970, regardless of the actual amount (even if less than $12,970) of qualifying adoption expenses incurred. For other adoptions, the limit remains as the lesser of actual qualifying adoption expenses or $12,970.
Adoption expenses relating to a child (without special needs) who is a citizen or resident of the United States are eligible for the credit, regardless if the adoption is finalized.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information.