What is the Adoption Tax Credit? What are Qualified Adoption Expenses?

The adoption tax credit offsets qualified adoption expenses making adoption possible for some families who could not otherwise afford it. Taxpayers who adopt a child may qualify for an enhanced adoption tax credit for the years 2010 and 2011.

You may qualify for the adoption tax credit if you adopted or attempted to adopt a child and paid qualified expenses relating to the adoption. The amount of the adoption tax credit is as much as $13,170 for 2010. You may be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you may qualify for the full amount of the adoption tax credit even if you paid few or no adoption-related expenses.

For 2010, you may not get the full amount of the adoption tax credit if your modified adjusted gross income (MAGI) is $182,520 or more and the credit is completely phased out if your MAGI is $222,520 or more. IRS may make inflation adjustments to the maximum amount of the credit and the MAGI amount for the phase-out for 2011.

What are qualified adoption expenses?

Qualified adoption expenses are reasonable and necessary adoption fees. They include:

  • court costs,
  • attorney fees,
  • traveling expenses (including amounts spent for meals and lodging while away from home), and
  • other expenses directly related to the legal adoption of an eligible child.

Expenses paid in an unsuccessful attempt to adopt an eligible child before finalizing the adoption of another child can qualify for the credit.

Qualified adoption expenses do not include expenses:

  • for adopting your spouse‚Äôs child,
  • for a surrogate parenting arrangement,
  • that violate state or federal law,
  • paid using funds received from a federal, state, or local program,
  • paid or reimbursed by your employer or any other organization, or
  • allowed as a credit or deduction on a federal tax return.

You cannot claim a credit for the same adoption expenses used to claim the income exclusion.

Expenses connected with a foreign adoption (where the child was not a U.S. citizen or resident at the time the adoption process began) qualify only if you actually adopt the child.