The Adoption Tax Credit for 2013 and Beyond

As you may know, as part of the fiscal cliff legislation at the end of 2012, the adoption tax credit was retained. In fact, in a wonderful turn of events, the adoption tax credit was one of the provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that was made permanent. The maximum credit for 2013 actually increased from $12,650 and is now $12,970. All other features of the adoption tax credit as it previously existed were retained, including that an adoption petitioner may take the credit for a failed adoption and may carry any unused portion of the credit forward until it is exhausted. Further, the adoption tax credit may be taken for a special needs child without the need to document actual expenses (i.e., a flat credit). The full credit is available to taxpayers filing jointly with a modified adjusted gross income of $194,580 or less, and the credit will phase out completely at $234,580. The only conceivable drawback of the recent legislation is that it is not refundable. A refundable credit is generally thought to be more advantageous in that it can reduce an individual's taxes owed below zero and, therefore, provide a refund. Regardless, this is clearly good news for adoptive parents and children everywhere!