How does Adoption Tax Credit Work?

What do you need to receive the adoption tax credit?

To claim the adoption tax credit, you generally must file a joint return if you are married. However you may take the adoption tax credit on a separate tax return if you are legally separated or if you are married and living apart from your spouse and:

• you lived apart from your spouse for the last 6 months of the year

• the eligible child lived with you for more than half the year

• you paid over half the cost of keeping up a home for yourself and the eligible child

What is the dollar limit of the adoption tax credit?

The amount of the adoption credit is limited to $10,960 for each effort to adopt an eligible child. If you pay expenses for an adoption that is not successful and then pay additional expenses to successfully adopt a different child, this is considered one effort.

The amount of the adoption tax credit for all your expenses is limited to $10,960. Also if you are claiming an adoption credit for expenses in the tax year and you have taken an adoption credit in a previous year for the same adoption effort, you must reduce the $10,960 by the amount of the previous qualifying expenses. The $10,960 credit is allowed for a special needs child even if you do not have qualified adoption expenses. 

Income limit for adoption tax credit

The adoption tax credit is reduced if your modified adjusted gross income is more than $164,410 but less than $204,409. The adoption tax credit is eliminated if your modified adjusted gross income is $204,410 or more. For purposes of the adoption tax credit, modified adjusted gross income is usually the same as your AGI on line 37 of the form 1040. These limits apply to all taxpayers regardless of the filing status.

If your modified AGI is..	Then the income limit ..
$164,410 or less	will not affect your credit or exclusion
$164,410 - $204,409	will reduce your credit or exclusion
$204,409 or more	will eliminate your credit or exclusion