What Does Adoption Cost?

The costs of an adoption vary depending upon the circumstances of the adoption. Agency fees are usually the largest cost associated with a private adoption. Public agencies are generally less expensive than private agencies. In a private independent adoption, birth mother living expenses and medical care would be the most costly portion of the expenses.

Following is a list of costs commonly associated with a private, independent adoption. Please keep in mind that some or all of these costs may be required in any given adoption and that they vary greatly. For example, one birth mother may have insurance or public assistance to pay for her medical insurance while another birth mother may not.

  • Agency fees
  • Attorney fees
  • Court filing costs
  • Guardian ad litem fees
  • Adoption consultant fees
  • Birth mother's living expenses
  • Medical, counseling and hospital expenses for birth mother
  • Travel expenses (if out-of-state birth mother)
  • Advertising costs including internet website

An agency or attorney can provide an estimate of anticipated expenses when the particular needs and desires of the adopting parents are known.

There is a tax credit available for expenses related to the adoption of a child. For most adoptive parents, the credit on 2001 returns provides up to $5,000. When a child has special needs that make him or her difficult to place, the credit is worth $6,000. Claiming the credit is a bit complicated. The exact year you can claim your expenses depends on several factors, including when the expenses were paid, when the adoption was finalized and even whether your new son or daughter is a U.S. citizen or resident.

If you adopt an American child or resident, here are the Internal Revenue Service guidelines on when you can take the credit:

For adoption expenses you pay in: Take the credit in:
- any year before the year the adoption becomes final,
- the year after the year of the payment,
- the year the adoption becomes final,
- any year after the year the adoption becomes final,
- the year of the payment.

The rules for an international adoption are slightly different. In these cases, any costs you incur cannot be taken until the year the adoption is final. With domestic adoptions, you can claim your expenses even if the adoption never is completed.

Court costs, adoption charges, attorney fees and travel expenses are some of the items covered by the credit. Expenses related to surrogate parents or the adoption of a spouse's child aren't allowed.

In addition to the tax credit, adoptive parents who get financial help from their companies may be able to avoid paying tax on up to $5,000 ($6,000 for special needs kids) of that employee benefit. You may claim this income exclusion along with the tax credit for the same adoption, but you cannot use both to write off the same expense. For example, if your company reimburses your adoption travel costs, you cannot use these expenses as part of your credit filing.

There are a few other adoption credit limitations to keep in mind. First, the credit amount is per child, not per year. So, if the adoption of your son takes four years and costs $8,000, you will be able claim only $5,000 of your expenses during that whole time. Second, the credit begins phasing out if your adjusted gross income exceeds $75,000. You can't take it at all if you make more than $115,000. Those limits apply to either single or married filing jointly filers.

The tax news for adoptive parents in 2002 and beyond gets better. For this and future tax years, the credit amount jumps to $10,000 per child, whether the youngster is special needs or not. The starting point of the credit phase-out range also doubles to $150,000 and taxpayers will be able to make as much as $189,999 and still get some of the credit.

Details on the adoption tax credit and exclusion can be found in IRS Publication 968, Tax Benefits for Adoptions" To view the Adobe Acrobat file click here. If you do not have Adobe Acrobat Reader installed on your computer download it for free by clicking here.

A variety of adoption benefits may be available to you through your employer. Some companies offer adoption expense assistance or legal service plans to help defray the costs of adoption. Further, employers may offer paid or unpaid parental leave for employees who adopt. Check with your employer's human resources department to see what employee benefits may be available to you.

In a private or agency assisted adoption, it is common for potential adoptive parents to pay for birth mother living expenses or medical care before the baby is born. In the event that the adoption does not go forward, these expenses are generally not reimbursable.