For the 2012 tax year, adoptive families with modified adjusted gross incomes of up to $189,710.00 should be eligible to receive the full $12,650.00 adoption tax credit! The tax credit completely phases out for families with modified adjusted gross incomes of $229,710.00 or more. (23 (b)(2)(A). (See section 3.15 of this revenue procedure for the adjusted items relating to adoption assistance programs.)

Special Rule for adoptive parents of SPECIAL NEEDS CHILDREN (as determined by the state) may qualify for the full $12,650.00 tax credit regardless of whether or not they have incurred any actual expenses.

WHAT HAPPENS IN 2013? Unless the legislature votes to extend the tax credit the existing adoption tax credit will expire.

Starting in 2013 - Only families who adopt special needs children from foster care will be eligible for up to $6,000 in the adoption tax credit. However, the credit will be based on expenses so families would need to have qualified adoption expenses to claim any credit. The credit will not be refundable, so families can benefit only if they have federal income tax liability. The income limits for the credit will also be reduced significantly in 2013, meaning that families with higher incomes will not benefit. This part of the adoption tax credit was made permanent for special needs adoption when the credit was first created.

IMPORTANT NOTE: While the adoption tax credit has been extended until Dec 31, 2012, unlike in 2010 and 2011 it is no longer a refundable tax credit.

• For international adoptions the following link provides detail on how the IRS will treat the adoption tax credit for different visa's and different situations. Page 5 and 6 provide the answers. www.irs.gov/irb/2005-26_IRB/ar14.html
• For domestic adoptions, the credit may be taken in the year that follows the year in which the expenses are incurred as well as in the year in which the adoption was finalized.
  *Note: In domestic situations, the credit is available for each effort to adopt an eligible child even if the adoption is not completed.
• IRS Revenue Changes relating to the 2011 Tax Credit can be found at http://www.irs.gov/irb/2010-46_IRB/ar17.html

• Costs of adopting a spouse's child
• Expenses taken as a credit or deduction elsewhere on a tax return
• Expenses paid for through an employer program
• Expenses paid for by federal state or local funds

• For the 2012 tax year up to $12,650.00. in adoption assistance provided by an employer may be excluded from an employee's taxable income!

• Find out if you can apply for an Adoption Taxpayer Identification Number (ATIN): The answer may differ depending on whether your adoption was a domestic one or international. See the below link to the IRS Q & A: www.irs.gov/individuals/article/0,,id=96452,00.html

• Try www.nfpaonline.org. This organization has been providing informative yearly guides on the adoption tax credit.
• The following link to an article written by Mark McDermott is a great resource to answering many of your other adoption tax credit questions: http://www.adoptionattorneys.org/members/Listserv/TaxCredit_2011-McDermott.pdf
• Another great resource is: http://www.nacac.org/taxcredit/taxcredit2011.pdf

http://www.irs.gov/pub/irs-pdf/i8839.pdf

For questions about adoption in 2010 and 2011 go to: www.irs.gov/taxtopics/tc607.html

This information is to serve as a guideline only and should not serve as a definitive source or a substitute for professional tax advice.