Affording Adoption

Loans & Resources
Adoption Tax Credit
Military Adoption Benefits
Employer Adoption Benefits

One of the first things families learn about adoption is that the fees associated with the cost of adoption can be substantial. It's easy to become overwhelmed and think it an impossible task to find the money required. Often, families can afford to raise a child, but affording adoption itself can be daunting.

Fortunately, there are many resources available to assist you. If you qualify, some are relatively easy to obtain, such as the adoption tax credit and employer adoption benefits. Others will take time and effort on your part. The good news is that you can afford to adopt if you are willing to work at it. Set goals, short- and long-term, and take it one step at a time.

Loans & Resources back to top
Loans are one way to pay for some or all adoption costs. You can talk to your bank about home equity or line of credit loans. While loans do require repayment, there are resources that can help you with that once your adoption is finalized, such as the Adoption Tax Credit.

We want to help make your dream of adoption come true by providing resources and information about mortgage-based loans, credit cards, and other financial resources.

Home Mortgage Refinance
One of many ways to generate income to afford the expenses associated with adoption is that of mortgage refinancing. The decision to refinance has just as much to do with your circumstances as it does with the current interest rate available. For example, if you have an adjustable-rate mortgage (ARM) or your fixed-rate mortgage (FRM) is about to turn into an ARM, and the interest rate is going up, you might want to consider refinancing or renegotiating your mortgage rate. Other factors, such the amount of equity you have gained and whether or not you pay mortgage insurance, help to determine whether you are a good candidate for refinancing.

Refinancing can help by reducing your monthly mortgage payment, and the surplus could then go into savings toward your adoption expenses. It can also help if you are able to use your home equity and higher appraisal of your home’s value to refinance for an amount higher than your current mortgage, using the excess amount to help with your adoption expenses.

Home Equity Line of Credit
Though perhaps not the first approach to generating funds for an adoption, seeking a Home Equity Line of Credit (HELOC) has become the most common way for paying your adoption related expenses. This involves using a credit line to borrow against the equity in your home.

Many balk at the thought of going into debt for adoption expenses yet just as many may not think twice about taking out a loan for as much or more to buy a car, a house, go on vacation, etc. and spend 2 years or more making monthly payments to repay the loan. What better investment than in a child?

When choosing this method to generate the funds needed, keep in mind that you must pay this money back. You can use your full tax refund(s) from using the adoption tax credit.

Be careful to take out only what you can afford to repay monthly should you be unable to raise extra funds. Compare interest rates with lenders and banks for the lowest rates, and be sure to talk with a tax professional regarding the tax implications of this type of loan.

Funding Your Adoption With a Credit Card
Using a credit card to help pay for your adoption related expenses, or "borrowing" on your credit card, should be one of the last tools you take of the toolbox, but it is an option that many have used to help pay for the costs of adopting.

Sometimes the deadline for payment of adoption related fees arrives before a family can raise the funds. A credit card is a way to pay the immediate fees while generating the extra income needed. As the income is generated, immediately pay the balance of your credit card. Don't be tempted to pay off the balance later.

Just as with other types of loans, use only what you'll be able to repay; just because it is available doesn't mean you should use it. Then pay off the full balance as quickly as possible. Shop around for the lowest possible interest rate with no annual fee. If you can pay off the entire balance within the introductory period of a zero interest credit card, you can use this option free of interest.

Adoption Tax Credit back to top

THE BASICS OF THE ADOPTION TAX CREDIT
By: Michelle M. Hughes

How much is the adoption tax credit for, and who qualifies?
Some adoptive parents will qualify for a tax credit of up to $12,170.00. Parents whose adjusted gross income is under $182,520 will qualify for the entire $12,170.00 credit provided they spend that amount of money on their adoption expenses and taxes are owed. Parents whose incomes are between $182,520 and $222,520 will qualify for a partial credit that is prorated. If you earn over $222,520, you are in the upper income bracket in the United States and do not qualify for the credit. While most adoptive parents will still find they have to pay substantial sums of money prior to the adoption, once completed, the credit should relieve some of the financial burden for most parents.

What should I do to document that I qualify for this tax credit?
It is important that adoptive parents get and keep receipts for all legitimate adoption expenses. If it is a domestic, non-special needs adoption, the credit is taken in the year the expenses are incurred. Legitimate adoption expenses would include, but are not limited to, attorney fees; agency fees, consultation fees, and legitimate birth parent expenses.

What is the difference between a credit and a deduction?
A credit is an amount that can be deducted directly from the taxes that you owe. It means you can get reimbursed dollar for dollar, unlike a deduction, provided you qualify for the credit.

What if the adoption never finalizes? Adoptive parents can take the credit even if the adoption does not finalize in a domestic adoption.

What if the tax liability for a particular year is less than the allowable credit for the year?
The credit can be carried forward for up to five years or until it is used; whichever comes first.

How does it work with employer reimbursements for adoptions?
The money claimed in a employer reimbursement must be different than the money claimed for the adoption tax credit.

Is the adoption tax credit the same as the child tax credit?
No. This credit is separate and apart from the child tax credit.

Qualifying Expenses
Qualifying adoption expenses are reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home,and other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.

Nonqualifying expenses
Qualifying adoption expenses do not include expenses:
• That violate state or federal law,
• For carrying out any surrogate parenting arrangement,
• For the adoption of your spouse's child,
• Paid using funds received from any federal, state, or local program,
• Allowed as a credit or deduction under any other federal income tax rule, or
• Paid or reimbursed by your employer or otherwise (except that amounts paid or reimbursed under an adoption assistance program may be qualifying expenses for the exclusion).

** Please remember to contact your tax specialist to see if you qualify for the Adoption Tax Credit. IRS Tax Credit Information: http://www.irs.gov/taxtopics/tc607.html  The Adoption Tax Credit is $12,150.00. Most of Angel Adoption's families are able to benefit from this tax credit, which significantly reduces the cost of adoption.

Military Adoption Benefits back to top

If you are on active duty in the military, you are eligible for reimbursement of expenses up to $2,000 for the adoption of a single child and up to $5,000 per family per year. There is one caveat: The adoption must have been arranged through a source that is authorized by a State to provide adoption placements, if the adoption is supervised by a court under state or local law. Paid after the adoption is finalized, this benefit is not doubled if both parents are in the military.

Fees that can be reimbursed include agency fees, legal fees, placement fees, and medical expenses. Travel expenses were not originally covered when this program was introduced, but they may be covered now.

Military parents can exercise an option to have children that are placed with them covered by their military medical program even before the adoption is finalized. You should apply to the Secretary of your branch of the service for the child to be a "Secretary Designee." If you have questions about this process, contact your commanding officer or The National Military Family Association at: (703) 931-6632.

Under the military’s Program for Persons with Disabilities, military parents may be eligible to receive up to $1,000 a month for disabled or special needs adopted children. The military also has a program called the Exceptional Family Member Program that will ensure that adoptive parents of special needs children are assigned to bases or duty stations that can meet the needs of the child.

Employer Adoption Benefits back to top

Many employers provide their employees with adoption benefits, such as paid leave, unpaid leave, or adoption reimbursements.

The following is a list of known companies that offer adoption benefits. Please check with your company to be sure!