Tax breaks help cut staggering adoption costs
When the extensive tax-law changes became law back
in 2001, Larry Torella paid close attention. After all, he's a tax
partner in the New York City office of the accounting and consulting
firm, Richard A. Eisner & Company.
But beyond his professional interest in the legislation,
Torella had a keen personal interest in one aspect of the tax cuts
-- the expanded credits for adoptive parents. In 1995, Torella traveled
to North Vietnam to adopt a 4-month-old infant. He and his wife
named their fourth child Jack.
"Even when we had our third, we thought about
adoption," Torella says. "We wanted to adopt a child who
would otherwise not have a home."
The Torellas are hardly alone in that attitude. The
most current statistics from the National Adoption Information Clearinghouse
(NAIC) indicate that about a half million people were seeking to
adopt a child; about 100,000 had actually applied for adoption.
Credits and income levels
The new tax law, effective in 2002, has three elements that impact
adoptive families. The first is that it increases the maximum tax
credit for adopting a child from $5,000 to $10,000 in the year the
expense occurred. The credit is per adoption, and can be spread
over several years.
"You could easily hit the $10,000 before you
even have the child identified," Torella says.
That credit covers qualified adoption expenses, including
court costs, attorney's fees and "expenses directly related
to adopting a child," Torella says, including travel. If you
adopt a special-needs child, the credit is $10,000, regardless of
The second benefit is that the government changed
the income level at which the credit phases out from $75,000 adjusted
gross income to $150,000 per couple.
"If you're in any larger city and both husband
and wife are working, it's easy to get over ($75,000 AGI),"
Torella says. "This will pull a lot more families in and make
a lot more people eligible for a credit."
The third point is a little technical, but still significant,
Torella says. If a family winds up using the alternative minimum
tax under the new tax laws, the allowable credit can't be reduced.
The tax credits are significant because the costs
of adopting a child can be staggering and unpredictable, especially
for a domestic, private adoption.
"Cost is a real impediment to a lot of families,"
says Susan Caughman, publisher of Adoptive
Families Magazine. "I've been to lots of adoption conferences
and people arrive starry-eyed and by noon, they're stunned. Private
adoption in the U.S. and overseas is very expensive."
The costs will vary dramatically, depending on what
route adoptive parents choose to pursue. Families adopting a special-needs
child from a public agency or foster care could pay nothing at all;
a private, independent adoption of a healthy infant could easily
cost more than $30,000.
Overseas adoptions also will vary in cost, depending
on the country from which a family chooses to adopt a child, says
Caughman, who adopted her daughter from China.
"Countries where adoptions are more regulated,
like Korea and China, are less, between $15,000 and $18,000,"
she says. "Russia is more unregulated, and the cost is higher.
Latin America runs around $21,000. Independent U.S. adoptions can
be a lot less and can be a lot more. It just depends."
Fees, fees and more fees
Items that run up the tab include application fees, home studies,
post-placement supervision, attorney's fees, court costs and medical
and living expenses for the birth parent. For overseas adoptions,
there also are filing fees for the child's visa and travel expenses.
The NAIC has an extensive list of the expenses, with
high and low ranges.
When the Torellas adopted Jack, the agency fee was
"somewhere around $13,000," Torella says. "You don't
really know how that money is allocated on the other end. We were
driven to the province where he was born, and the adoption official
literally carried a briefcase filled with cash. They took care of
whatever they needed to take care of. They never gave us a breakdown
of how the money was spent."
On top of the agency fee, the family had the expense
of traveling to Vietnam and then to Bangkok to the American embassy
for Jack's visa.
Many families cover the costs through a home
equity loan. Relatives and friends often help defray the costs
of international adoption by donating their frequent flier miles
for the travel expenses.
"A lot of people say, 'This is what credit cards
are for,'" Caughman adds.
The National Adoption Foundation offers financial
assistance programs for adoptive families. Your employer may
provide some assistance as well. Many companies today offer adoption
assistance as a benefit.
Since finances play such a crucial role in an adoption,
Caughman points out that families need to decide how much uncertainty
they can live with.
"An independent adoption could take five months
and $5,000 or three years and $60,000," she says. "How
do you plan for that? Frequently, you hear from families who had
four birth mothers fall through for various reasons and they wind
up going to Russia. People need to decide how much unpredictability
they can manage financially."
-- Updated: Jan. 13, 2003