Adoption Tax Credit to Expire at the End of 2010

Yet another of the coming tax increases you’ve got to be aware of is the elimination of the Adoption Tax credit.  This credit came about originally as a part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) and was expanded with the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA 2003).  As originally written, this credit is set to expire on December 31, 2010.

The Credit Today

Under today’s law, a family who adopts an eligible child can claim a credit of up to $12,150 and further exclude up to $12,150 (2009 figures) in income for the expenses associated with the adoption.  For 2010, the amounts will be adjusted slightly to $12,170 for the credit and exclusion.  The credit and exclusion begin phasing out for a taxpayer with Modified Adjusted Gross Income (MAGI) above $182,520 and is eliminated when the MAGI is $222,520 or more. For a family with a taxable income of $80,000 before the credits, this adoption credit can mean as much as a $15,000 difference in tax – which can be quite meaningful, given the extraordinary costs associated with adoption.

Beginning in 2011

Unless something changes, the current adoption credit is set to expire at the end of 2010.  So beginning in 2011, there is only an adoption credit available if the child being adopted has special needs.  The credit is expected to maintain the current levels, with inflation adjustments. The good news is that there are rumblings of rumor that Congress will extend the full adoption credit indefinitely – but we’ll just take a wait and see approach on that.  Given the relatively liberal MAGI caps on this credit, I would expect to see some sort of “adjustment” before the credit is extended beyond 2010; after all, anyone making over $200,000 is one of the filthy rich, don’t you know?

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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  • Hi, Jen –

    I agree, it doesn’t seem like a good rule, as it is a disincentive for folks with some additional resources (notice how I didn’t say “filthy rich”?) to get involved.

    The only remedy I can offer is for you to write your Congress representatives.


  • I guess I am a fithy rich person because in 2007 I made $216k and the limit then was $210K. Because I made $6k too much I didn’t qualify for the $11k tax credit. I have adopted four special needs kids and that $11k would have been nice. Why is there a maximum income cap? Who made up this rule? Who can I contact to see if this cap can be removed? It’s frustrating because I pay a ton of taxes for others to benefit from programs like this and yet I am penalized because I make too much. There should be no cap on a progrm like this. Any help would be greatly appreciated.

  • Hi, Debbie –

    I’m afraid it’s too late to claim the expense now. You may have been able to amend your prior years returns up to 3 years after the filing date, but that would have been April 15, 2008 for your 2004 tax return.


  • Edward –

    Yes, in general you can be allowed to carry over credit from previous years that was disallowed due to limits.


  • We had adopted 3 special needs kids in 2004. I was courious with this new tax credit if all the unused credit, still goes to waste or if now we get to finish claiming it? I appreciate the information. I was using turbo tax and it was letting me do it, but I was worried that it might be wrong.

  • Hello, Peter – I have not seen anything on an extension of the adoption tax credit within the proposed “extenders” bills, although it might be buried in the bill somewhere. But nothing has been passed (as far as any extenders) as of yet, and I’m not holding my breath.


  • Hi, Michelle –

    The adoption tax credit is claimed on Form 8839, and it is based upon the actual qualified adoption expenses incurred, with limits. Your tax professional can help you decipher the specifics on the credit, and most adoption agencies should be able to help you understand what expenses are “qualified”.

    If you have further questions, don’t hesitate to contact me.


  • Thnaks for the overview of adoption tax credit…can you explain to me…how and when exactly you get those credits? Does it spread out over many years? What do you mean by the exclusion exactly…is that basically an expense that you get to deduct?

    Thanks for your help,

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