The Federal Adoption Tax Credit is Here to Stay

Good news if you're wondering how to pay for your adoption!

Adopting a child is expensive, but there are resources and tools available that can significantly lower the cost of the adoption or help you to finance it in a way that makes it affordable. Of all of the resources available to assist with the expense of a private or independent adoption, the most significant one is the Federal Adoption Tax Credit.

The Federal Adoption Tax Credit, originally set to expire on December 31, 2012, became permanent on January 2, 2013.

If you or someone you know is currently pursuing an adoption or considering adoption you'll want to take note of the following highlights of the Adoption Tax Credit for 2013:

  • The maximum dollar limit for the credit in 2013 is $12,970 (previously $12,650)
  • The range for reduced credit or exclusion is $194,580 - $234,580 (previously $189,710 - $229,710). To be clear, if your modified adjusted gross income (MAGI) is less than $194,580 you qualify for the full credit. If your MAGI is between $194,580 and $234,580 your credit will be reduced and if your MAGI exceeds $234,580 you no longer qualify for the credit.
  • People who adopt special needs children can claim the maximum credit regardless of their expenses (unchanged)
  • The adoption credit is not refundable for 2012 and beyond so only those individuals with a tax liability will benefit (unchanged)
  • The adoption credit carry forward, beginning 2013, is indefinite (previously 5 years)

For adoptions in 2012 and prior years, accurate details about the credit can be found in the recently and well-enhanced Tax Topic 607 at

Did you know?

The Taxpayers Advocate Service recently published the 2012 Annual Report to Congress, Volume 11, which included some very significant findings impacting everyone who considers applying for the Tax Credit:


During the 2012 filing season, 90% of returns claiming the refundable adoption credits were subject to additional review, most commonly because of income and a lack of documentation. 79% of returns selected for audit in filing season 2012 had missing, invalid, or insufficient documentation.

What this means to you:

You may be able to minimize the chance that your credit application is audited. Before you go through the effort of applying, double check that your income qualifies you for the adoption tax credit. Be meticulous in confirming that your expenses qualify for the credit, complete Form 8839 with care and provide every piece of necessary supporting documentation.


69% of all adoption credit claims in the 2012 filing season were selected for audit.

What this means to you:

You can reasonably expect your credit application to be audited. Track your adoption expenses and keep all receipts form the day your adoption journey begins.


The average adoption credit correspondence audit takes 126 days.

What this means to you:

An audit of your credit application will delay the receipt of your refund.

Being meticulous in your application and accompanying documentation


While the federal tax credit offers a very significant benefit to those who qualify, it is only available to you after you finalize the adoption of your child. In planning how to pay for your adoption, you'll want to explore all of your financing options and when during the adoption process they are available to you. Please check back next month for our guide to adoption financing. We'll provide information on every type of resource, where and how to apply, when they provide funds during the process and how to evaluate which financial resources are right for you.


Amanda Grant is the President & CEO of USAdopt, LLC.


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