Tax Exemptions and Credits
The reimbursement benefits that Erin will receive from her employer—up to $5,000 with an adoption placement—will be excluded from taxable income. She and Jim are pursuing a private placement adoption that will cost about $25,000. They may also benefit from a federal tax credit of up to $10,390 (2004 figure) which is available per adopted child. This credit is for qualifying expenses paid to adopt an eligible child (including a child with special needs). They may claim both a tax credit and the exclusion in connection with the adoption of an eligible child, but may not claim the same expenses twice. As with the tax credit, tax-free adoption benefits are gradually phased out once family modified adjusted gross income rises above $155,860. To find out more about which adoptions and expenses are eligible, consult your tax advisor, the IRS helpline at (800) 829-1040, or IRS Publication 968 at www.IRS.gov.
Mortgage Based or Credit Based Adoption Loans
The tax credits and employer assistance programs will help put funds back in adoptive parents’ pockets after the money has been spent. However, prospective parents like
Jim and Erin will have to provide for the adoption expenses out of pocket initially. Home equity can be used to obtain a secured adoption loan at a low rate with flexible repayment terms. If enough equity is available, this type of loan can be used to cover the full amount of the adoption. A couple can then pay back large amounts toward the loan when the employer reimbursement and tax refund (due to the credit) is received.
If sufficient equity is not available, an unsecured or credit-based loan might be an alternative. These loans are available specifically for adoption, and feature 24- to 84-month payback periods, 90 days same as cash, and no penalty for early payment. Rates currently range from 9.99% and up.
Adoption Grants and Assistance
There are many faith-based and non-profit foundations that provide assistance to couples trying to adopt. Each program seems to have a different focus; some have income limitation while others do not. Due to the number of programs available, it’s best to start with the list from the National Adoption Information Clearinghouse at 888-251-0075 or http://naic.acf.hhs.gov. Other sources which provide grants and assistance can be located online by completing a search for “Adoption Programs and Funding.”