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Tax Credit For Adoption Expenses Increases Effective January 1, 2002

Without legislation to continue it, the Federal Tax Credit for Adoption expenses would have expired on 12/31/02. This law allowed taxpayers who adopted a child prior to January 1, 2002 to possibly be able to claim a non-refundable credit of up to $5,000.00 for qualified adoption expenses for each eligible child and $6,000.00 of the child is deemed a 'special needs' child.

Fortunately, the new law effective 1/1/02, makes the tax credit permanent and improves it in a number of respects:

    1. Tax credit is now permanent;
    2. The credit amount is increased from the existing maximum of $5,000.00 to a new maximum of $10,000.00;
    3. The maximum credit amount will be adjusted annually for inflation;
    4. The income limitations have been increased so that those with incomes under $150,000.00 (prior to 1/1/02 - $75,000.00) qualify for the full tax credit and so the amount of the credit would graduate downward to zero as incomes approach $190,000.00 (prior to 1/1/02 - $115,000.00)

NOTE: Qualified adoption expenses include but may not be limited to reasonable/necessary adoption fees, court cost, travel expenses, fees paid to government offices that facilitate the adoption, attorneys fees and other expenses directly related to the adoption. No Credit is allowed for any expenses reimbursable under another program or statute.

CAVEAT: The following is general information and should not be considered professional tax advice. Please consult with your CPA or other tax professional as each case should be treated on an individual basis.

M.D. Widelock is a California attorney whose practice is limited to independent adoptions and reproductive law. Mr. Widelock has served as a member of the California State Bar Standing Committee on Adoptions (South). Mr. Widelock is a law professor and his firm has provided commentary on family law and related issues to CNN, BBC and Current Affair. He has helped hundreds of people create families throughout the United States by making the adoption experience a good one for all.

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