How To Use The Adoption Tax Credit In International Adoption

Adoption Tax Credit In International Adoption


Choosing to adopt internationally is a wonderful journey. There’s the chance to welcome another country and culture into your hearts and home. There’s the opportunity to provide a child with a forever family. But there are also a lot of costs. The average cost of international adoption is roughly $20,000-$35,000+. For many families, this financial challenge can be a real hurdle, but thankfully you can use the Adoption Tax Credit in international adoption.

The Adoption Tax Credit (ATC) first came into being in 1997. It was made permanent by Congress in January 2013, but as recently as November 2017, the ATC was up for elimination due to federal budget cuts. Under the ATC any child who is under the age of 18 or is “physically or mentally incapable of self-care” is eligible. The difference is those who adopt domestically can claim the tax credit as they go but for those who adopt internationally it’s different.

When Can You Use The Adoption Tax Credit In International Adoption?

If you began your adoption in January 2016 but did not travel to bring your child home until February 2017 then the soonest you can claim the Adoption Tax Credit would be on your 2017 taxes. You would receive no tax credit in 2016 even though this is the year you may have paid most, if not all of your expenses, but you would be able to claim all of your expenses beginning in 2017, as this is the year your adoption was finalized. Unfortunately, unlike domestic adoption, you cannot claim expenses on any international adoption that falls through or fails to be finalized.

How Much Can You Claim?

The Adoption Tax Credit was designed to increase from year to year in correlation with Cost-of-Living Adjustment (COLA). For 2017, the maximum credit is $13,570 per child. If you adopted more than one child (like a sibling group) you can claim the maximum credit for each child. Though typically international adoptions cost more than the $13,570 credit, you may claim only as much as you spend. Most agencies will supply a receipt of fees paid but be sure to keep a list of all of your expenses. Everything from agency fees to court fees to travel fees (including airfare, lodging and meals) are eligible for the credit. Keep track of your receipts in a folder or even an excel spread sheet to make filing time easier.

A Tax Credit NOT a Deduction

A tax deduction (such as for a home office or property taxes) reduces your overall taxable income to create your MAGI (Modified Adjusted Gross Income). A tax credit offsets the actual taxes you will pay. For example, if after MAGI you have a tax liability of $7,000 you will effectively receive a refund for this amount as the Adoption Tax Credit offers a maximum credit of $13,750. This leaves a tax credit balance of $6,750 but thanks to the Adoption Tax Credit, you have up to five years after the adoption is finalized to use the maximum credit available. As of 2017 the Adoption Tax Credit is non-refundable so if your tax liability is not high enough you will not be eligible to receive the credit. But remember, you have five years after your adoption is finalized to claim the credit so if your tax liability changes you may still apply for the adoption tax credit in the ensuing four years.

Other Restrictions On The Adoption Tax Credit In International Adoption

Unfortunately, the ATC does have a cap. For families with an MAGI equal or less than $203,540 the tax credit gradually decreases with your earnings. For families earning $243,540 or more, no tax credit is available. It is important to note, too, that if you are married you must file jointly in order to benefit from the Adoption Tax Credit.

Filing for the Adoption Tax Credit

Though the process may sound daunting most tax professionals are familiar with the Adoption Tax Credit and even systems like TurboTax make it easy to efile using the credit. Just make sure to keep track of your receipts, research if your family meets the cap, and to file all five years, or until the maximum credit is obtained.