In 2001 the president signed into effect the Economic Growth and Tax Relief Reconciliation Act. Within the bill was a clause that increased the tax credit for couples who adopted a child, either domestically or internationally. The bill increased the tax credit from $5,000 ($6,000 for a special needs child) to $10,000. Over the years the credit has increased to account for inflation and now stands at $12,170 for 2010, which is a credit on a taxpayer’s return, not a deduction. That means the taxpayer gets the full $12,150 for qualifying adoption expenses instead of reducing his or her income by that amount. However the Reconciliation Act of 2001 is set to expire at the end of 2010 and the tax credit will revert back to the original amount.
With the average domestic adoption costing $20,000 to $25,000 and international adoption costing $25,000 to $45,000 this tax credit makes it possible for many couples to adopt. Without it some couples simply would not be able to afford adoption. This may mean that some couples who would otherwise adopt would now consider foster parenting or foster-to-adopt programs. On the other hand it also means that for those couples currently in the adoption process whose adoption is not finalized by the end of 2010, their tax credit reverts back to the pre-2001 amount.
For those who are unfamiliar with the adoption process, once the process has been started and fees have been paid they are non-refundable. Generally there is an application fee and other expenses for things such as the home study, but about 70% of the adoption expenses are paid upon placement or finalization. Waiting to be matched with a child can take a year or more.
A bill called the Adoption Tax Relief Guarantee Act was introduced in 2009 to make the tax credit from the Reconciliation Act a permanent benefit. It is still in the first steps of the legislative process and has not yet reached the House or Senate. Those who are interested can click here to find the contact information for your local representative or Senator.
Thousand of families have been created through adoption and many of those families depended on this tax credit to afford it. Without it many more families would not be able to make their dreams of parenthood a reality. Please take the time to advocate for this important benefit.
IRS- http://www.irs.gov/pub/irs-utl/egtrra_law.pdf and http://www.irs.gov/taxtopics/tc607.html
The Adoption Guide- http://www.theadoptionguide.com/tools/planner/matrix