Can We Still Take The Adoption Credit?

Tracy brought home a daughter from China in July 2010. They received $28,000 in donations of the $35,000 adoption cost. Is Tracy still eligible for the adoption tax credit?

QUESTION: Tracy in Arkansas brought home a daughter from China in July 2010. They received $28,000 in donations of the $35,000 it cost them to help pay for the adoption. Is Tracy still eligible for the adoption tax credit?

ANSWER: Yes, you are for a portion of it, and there are also special needs rules for the child. Go see your tax professional, because the adoption credit is very convoluted. It’s difficult to determine. There are attorney’s fees involved, travel costs, medical expenses, and you can go right on down the list.

The credit amount for an international adoption stays the same—the maximum is $12,500 unless the child has special needs, and then there’s an additional amount. That is a refundable credit, by the way. It’s not a carry-forward and even if you didn’t pay it in, you still get it.

Donations don’t offset because they’re gifts. The only thing that would offset would be if it’s special needs and the state pays so much toward the special needs child. Sometimes, they’ll pay up to $100 a day. That comes off the amount of expense, but that’s all.