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October 26, 2016

Adoption Tax Credit 2016

The IRS recently announced that the maximum adoption tax credit for 2016 will be $13,460.00. The adoption tax credit, established in 1997, has helped multiple thousands of families afford to adopt.

Remember that a tax credit is different from a tax deduction–it’s better. A credit is an amount that is subtracted from the adopting parents’ tax liability. The adoption tax credit was a refundable credit only in 2010 and 2011, and will not be refundable in 2016.

The precise amount of the tax credit depends on the expenses incurred and the amount of taxes owed by the adopting parents. Here are two examples:

  • If the adopting parents spent $10,000.00 in recoverable adoption costs but owe only $7,000.00 in federal taxes, they can take a tax credit for only $7,000.00 in the first year following the adoption. But they may carry forward the unused credit for five tax years or until it is used, whichever comes first.
  • If the adopting parents owe $30,000.00 in federal taxes in one year and pay $10,000.00 in recoverable adoption costs that same year, they can claim the full $10,000.00 tax credit, thus reducing their tax liability to $20,000.00.

What Costs Can Be Included in Adoption Tax Credit 2016

Adopting parents can take a tax credit for “qualified expenses” they spend to adopt a child. “Qualified adoption expenses” are reasonable and necessary adoption fees, court costs and attorney fees, traveling expenses (including meals and lodging), and other expenses directly related to the adoption. The maximum tax credit that parents can take is adjusted each year and for 2016 is $13,460.00.

Income Cap for Adoption Tax Credit 2016

An important limitation on the Federal Adoption Tax Credit is the income cap. Under the 2016 formula, adopting parents who earn no more than $201,920.00 are entitled to take the full credit. For adopting parents who earn between $201,920.00 and $241,920.00 in income, there is a reduced tax credit, and no tax credit is available for those earning more than $241,920.00.

Adoption Tax Credit for Adopting a Child with Special Needs

Parents who adopted a child who has been determined to have special needs by the state or county child welfare agency can claim the maximum credit regardless whether they have qualified adoption expenses at all or have spent any money to adopt the child.

Special needs for the purposes of the adoption tax credit is almost exclusively for foster children, and the vast majority of kids adopted from foster care are considered to have special needs. Basically if the child receives adoption assistance or an adoption subsidy from their state or county, then they are considered special needs for purposes of the tax credit. This assistance or subsidy does not have to be in the form of a monthly payment—it is sufficient that you receive either reimbursement of non-recurring adoption expenses or Medicaid through the adoption assistance program.

We hear from parents who adopted children internationally or domestically who clearly have “special needs” or are disabled or in therapy who want to know if their child will qualify as special needs under the adoption tax credit. The answer is likely no.

No child adopted internationally is considered special needs for the adoption tax credit. Children adopted domestically, but not through the state foster care system and not receiving adoption assistance from the state foster care system are not considered special needs for the adoption tax credit. Not even every child adopted from foster care is considered special needs (about 10 percent of children adopted from care do not receive adoption assistance support).

Is the Adoption Tax Credit Available for Step Parent Adoption?

The short answer is no. The adoption credit is for international adoptions, domestic private adoptions, and public foster care adoptions, but is not available for stepparent adoptions.

Is the Adoption Tax Credit Available for Second Parent Adoptions

Expenses incurred by a registered domestic partner who lives in a state that allows a same-sex second parent or co-parent to adopt his or her partner’s child, are considered adoption expenses and are eligible for the adoption tax credit if the costs meet the definition of “qualified expenses”.

Much of the information about the Federal Adoption Tax Credit for this blog came from the Law office of James Fletcher Thompson. Additional Information can be found at:

Have you benefitted from the Adoption Tax Credit?

Image credit: Alan Cleaver
Blog credit: Creating A Family 

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