Have You
Added to Your Family?
Your adoption expenses may qualify for a tax credit
If you are
thinking about, or have already adopted a child under the age of 18, there
are deductions and credits available for the expenses you have incurred. A
recent change to the law has increased the amount of credit that is
available. In 2002, you may be entitled to a tax credit of up to $10,000.
Expenses that
qualify for this credit include any reasonable and necessary adoption fee,
court costs, attorney fees, travel expenses, including meals and lodging,
and any other expenses you paid that were required by the state as a
condition of the adoption.
The credit is
allowed in the year the adoption becomes final. If you paid adoption
expenses in 2002, and the adoption is not final until 2003, the credit
will be allowed on your 2003 income tax return. If you paid expenses in
2001, and the adoption became final in 2002, you are entitled to the
credit on your 2002 income tax return. However, because the law changed,
increasing the amount of the credit for amounts paid after December 31,
2001, you will only be allowed a maximum credit during tax preparation of $5,000 in 2002 ($6,000
for special needs children). If you are paying qualified adoption
costs and anticipate the adoption will become final in a future year,
remember to include the projected future adoption tax credit in your
income tax planning.
The credit will reduce
your tax liability dollar for dollar. If you are unable to use the entire
amount, the remainder can be carried over to claim for the next five
years and can factor into your future income tax planning. Any carryover existing after the five-year period is lost.
