TO: All Families Adopting Children
A recent change in the tax laws gives a major tax break to families who adopt children. Effective January 1, 1997, adoption expenses of up to $5,000 for each adopted child can qualify as an income tax credit. A tax credit is much better than a deduction, because a deduction reduces taxable income, but a tax credit directly reduces the amount of tax you owe.
Adoption expenses that qualify for this new tax credit include adoption agency fees, attorneys' fees, court costs, and other expenses of the adoption. Costs to enlarge or modify your home to accommodate your adopted child may also qualify, if the modifications were required by the State. The tax credit increases to $6,000 for adoption of "special needs" children. However, expenses to adopt a child of your spouse do not qualify for the credit.
The new adoption tax credit is found in Section 23 of the Internal Revenue Code. The credit is "nonrefundable," so families who may not be able to use the entire credit in one year should try to spread payment of adoption expenses over more than one year. You should consult with your tax professional for details about this great new tax incentive for adopting children.
NOTICE
This web page and the information contained herein may constitute advertising material under the Illinois Rules of Professional Conduct.
The firm brochures provided by Smith, Landmeier & Elders, P.C. are intended to provide general information on various areas of the law. They are not to be relied upon for specific legal advice. Transmission or receipt of this information is not intended to create an attorney-client relationship. Any specific legal questions or issues should be handled by a competent attorney.
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Last Updated Jan 5, 2005