Federal Tax Credits

Small Business Job Protection Act of 1996 (SBJPA) Public Law 104-188. Enacted on August 20, 1996 allows adoptive families to take a tax credit of up to $5000 for qualify expenses paid to adopt eligible children. The law came into effect in 1997 and expires December 31, 2002, but the law permanently establishes a $6,000 tax credit for the adoption of a U.S. child with special needs.

Qualifying expenses are reasonable unnecessary adoption fees, courthouse, attorney fees, traveling expenses meals and other expenses directly related to and whose principal purposes for the legal adoption of the child.

The income limit on the adoption credit is based on the modified adjusted gross income. If the adoptive families adjusted gross income is more than $75,000 per year the credit or exclusion will begin to phase out. Once the modified adjusted gross income reaches 115,000 or more to credit or exclusion will be eliminated.

The federal government defines an eligible child as a person being under 18 years all or younger, or physically or mentally incapable of caring for himself or herself. An eligible child is a child was special needs if year she is assistant arose in the United States and the state determines that the child cannot or should not be returned to his or her parents home and probably will not be adoptive less adoption assistance is provided to the adoptive parents. A foreign child cannot be treated as a child with special needs.

The adoption tax credit is $5000 per adopted child. This means that a family adopting two children can receive tax credits totaling $10,000 upon completion of the adoption. There are numerous cases where there's a failed adoption. This occurs in both foreign and domestic adoptions. For example, if $3000 is spent pursuing adoption of a child and that adoption is unsuccessful for any reason, and the family spends $4000 for the completion of the adoption of the second eligible child, the family is only entitled to the tax credit of $5000. In other words, all moneys in this situation will be treated as expenses paid in one adoption effort.

Federal Adoption Tax Credit

Adoptive parents may be able to claim a tax credit on their federal income tax return for qualified expenses incurred to enlarge their families. This credit can be claimed even if the adoption hasn't been finalized.

The Federal Adoption Tax Credit can help parents pay for more than $10,000 in costs they incurred to welcome a child into their families. There are no longer separate credit limits for an adopted child with special needs as long as the youngster is a U.S. citizen or resident. However, the timing of the eligible expenses affect the credit amount in international adoptions.

The tax credit limit is for expenses associated with each adopted child, rather than an annual limit. The law change will allow the credit to be spread over several years. The credit, however, is progressively phased out for higher-income families.

According to IRS Publication 968, qualified adoption expenses include:

Reasonable and necessary adoption fees
Attorney fees
Some travel costs, including necessary transportation, meals, and lodging

Expenses related to surrogate parents or adopting a spouse's child do not qualify for the credit. The credit also does not apply to expenses reimbursed by the government or private programs or for which an income tax deduction or credit already is allowed.

Guatemalan Adoptions, NFP
307 Henry Street, Suite 211
Alton, Illinois 62002

phone: (618) 462-4477
fax: (618) 462-8585
click here to email us

Guatemalan
Adoptions, NFP
307 Henry Street,
Suite 211
Alton, IL 62002

phone: (618) 462-4477
fax: (618) 462-8585
email us now

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Serving the Southern Illinois area for all International Guatemalan Adoptions.

John D. Stobbs, II
ATTORNEY AT LAW
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Rosario Stobbs
INTER-COUNTRY COORDINATOR
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