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Hope for Children's Act
Holt has prepared this brief overview of the Adoption Tax Credit with direct links to forms and resources. This document is a general guideline for the new provisions of the adoption tax credit. It should not be used as a definitive source of information for individual cases. IRS Publication 968 is available above.
PLEASE NOTE:
The $10,000 tax credit became available in the 2002 tax season. For 2004, the maximum credit increased to $10,390. Holt strongly recommends adoptive families consult a legal or tax professional, particularly for international adoptions.
What is the Hope For Children Act?
The Hope for Children Act (Public Law 107-16) increased the previous $5,000 adoption tax credit for "qualifying adoption expenses" to $10,000 in 2002 and $10,390 in 2004. It also increases the employer adoption assistance exclusion to $10,390.
When did the $10,000 adoption tax credit go into effect?
The Hope for Children Act is effective January 1, 2002. (For taxes filed in 2002)
What are 'qualified adoption expenses?'
According to the IRS: "Qualifying adoption expenses are reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including meals & lodging) and other expenses related to, and whose principal purpose is for, the legal adoption of an eligible child."
Who qualifies for the tax credit?
Persons with modified adjusted gross incomes of $152,390 or less, phasing out for modified adjusted gross incomes up to $192,390.
Do all adoptions qualify for the $10,390 tax credit?
Non-special needs domestic adoptions and FINALIZED international adoptions qualify.
What about special needs adoptions?
Please refer to IRS Publication 968 for specific information.
How does the $10,000 tax credit work for international adoptions?
Please refer to IRS Publication 968 for guidelines.
Can families claim the full credit over multiple years?
Yes, the credit can be applied against tax liability over six years or whenever expenses reach the $10,390 cap (2004), whichever comes first. IRS Publication 8839 provides a worksheet for calculating the credit carry forward.
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