Adoption Credit for Tax Year 2010

The maximum credit allowed for qualifying adoption expenses has been increased to $13,170 per child due to an inflation adjustment and a change made in the health care reform act.

Beginning in 2010, the adoption credit is also a refundable credit.

The adoption credit begins to phase-out when modified adjusted gross income (MAGI) exceeds $182,520. The adoption credit is completely phased out when MAGI reaches $222,520.

NOTE: If the eligible child is NOT a U.S. citizen or U.S. resident, you CANNOT claim the adoption credit until the adoption becomes final.

Special Rule for Adopting a Child With Special Needs

The adoption credit allowed for a domestic child with "special needs" is $13,170 even if you did not have any qualified adoption expenses. This amount is reduced for any qualified adoption expenses claimed for the same child in a prior year.

Definition of Child with Special Needs - An child is eligible if he or she is a citizen or resident of the United States (including U.S. possessions) and a state determines that the child cannot or should not be returned to his or her parents' home and probably will not be adopted unless adoption assistance is provided to the adoptive parents. Factors used by states to determine if a child has special needs could include:

• The child's ethnic background,

• The child's age,

• Whether the child is a member of a minority or sibling group, or

• Whether the child has a medical condition or physical, mental, or emotional handicap.

If your state has determined that the child you are adopting is a child with special needs, you should keep evidence of that fact for your records.

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