Most Americans know about the tax benefits of having children, but you might be surprised to learn that there are actually decent tax incentives to adopt children. The RDTC Tax Help Blog posted a blog entry last week explaining the tax laws surrounding adoption. You can find a segment of the article below or find the full text at the RDTC Tax Help Blog.
The Basics
There are two main tax incentives for families that adopt, an exclusion and a credit. Taxpayers can take advantage of the credit and exclusion for the expenses of adopting an eligible child. Meaning, you may be able to exclude up to $12,170 (or whatever the limit is for the tax year) from your income, and claim a credit for the same amount. However, you cannot claim both the credit and exclusion for the same expenses.
Credit Amounts
The value of the credit for the past few years is listed below. It is important to note that the credit was expanded in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, which is due to expire at the end of 2010. Unless Congress extends the package the value of the credit will be reduced by at least 50%.
2011: $6,000 or less
2010: $12,170
2009: $12,150
2008: $11,650
2007: $11,390
2006: $10,960
Income Phase Outs
As with most federal tax credits and deductions, the value of the adoption credit phases out when your income reaches a certain level. The phase out ranges are listed below for the past few tax years. The IRS also provides a worksheet for figuring out your credit value in the Instructions for Form 8839.
2010: $182,520 - $222,520
2009: $182,180 - $222,180
2008: $174,730 - $214,730
2007: $170,820 - $210,820
2006: $164,410 - $204,410