State & Federal Tax Benefits

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Unless you make over $195,000 per year adjusted gross income, you are eligible for part or all of the U.S. Federal government adoption tax credit. If you make less than $153,000, you are eligible for the full credit. (This credit is currently over $10,000.) For more details on the tax credit, see The AdoptionTax Credit.

Since you won’t get this credit until after the adoption is complete, you may want to take out a short term loan that you can pay back with this credit. (Note: Be sure you fully understand the difference between a tax deduction and a tax credit. If you are not paying $10,390 per year in taxes, you will not get a full $10,390 credit in one year. However, you can spread out the tax credit over five years, if necessary.) In addition, you can take two years to take full advantage of the tax credit.

Fifteen states also offer state level tax assistance for adoption at the time of this writing (be sure to check with your tax advisor since tax laws change frequently):

  1. Arizona
  2. California
  3. Idaho
  4. Iowa
  5. Kansas
  6. Maryland
  7. Massachusetts
  8. Michigan
  9. Missouri
  10. New Mexico
  11. North Dakota
  12. Oklahoma
  13. Utah
  14. West Virginia
  15. Wisconsin

For example, Wisconsin offers a $5,000 deduction. Check your state’s tax laws for details on tax deductions or tax credits for adoptions. And remember, tax deductions are not as big a savings as tax credits.

If your child is placed with you but the adoption is not finalized until the following year, you can still claim a tax deduction for the child as your dependant in the year he was placed with you – even though the adoption was not finalized at that time. Children whose adoptions have been finalized are eligible for the same exemptions as a biological child. An important requirement for this exemption is that families must provide more than half of their child’s support. Some adopted children receive subsidies, which may provide more than half of their support. For example, if a family receives $3,000 per year in subsidies for a child, the family must provide $3,001 (or more) per year to claim the child as an exemption.

Credits: Excerpted from "International Adoption Guidebook," Mary M. Strickert, 2004

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