Managing adoption costs

July 4, 2001: 11:41 a.m. ET

Using the new tax laws to plan and finance an adoption
By Pat Curry

NEW YORK (Bankrate.com) - When President George W. Bush signed the tax-cut package in June, 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 & Co. 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 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 said. "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 said.

The credit covers qualified adoption expenses, including court costs, attorney's fees, and "expenses directly related to adopting a child," Torella said, including travel. If you adopt a special-needs child, the credit is $10,000, regardless of your expenses.

	NEW 2002 ADOPTION TAX LAWS
		Tax credit increases to $10,000 from $5,000 Income level for credt elligibility increases to $150,000 from $75,000 If minimum tax is used, credit cannot be reduced

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 said. "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 said. 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," said 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, said 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 said. "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 said. "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."

	POTENTIAL ADOPTION FEES
		aaplication fee travel fees post-placement supervision attorney's fees court costs medical expenses

On top of the agency fee, the family had the expense of traveling to Vietnam and then to Bangkok, Thailand, and the American embassy there 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 added.

The National Adoption Foundation has a revolving loan fund for adoptive families. They can either apply for a home equity loan or unsecured loan, both underwritten by MBNA, or apply for a grant to assist with adoption costs. Call the foundation at (203) 791-3811 to request an application packet.

Your employer may provide some assistance as well. Many companies today offer adoption assistance as a benefit. One footnote for families researching adoption costs on the Internet: adoption cancellation insurance is currently unavailable. MBO Insurance Brokers in Menlo Park, Calif., was listed on the NAIC site as a source for a policy from Kemper Insurance. Art Adams, who ran the program, said he hasn't had the policy since 2000, but is actively trying to find another company to offer it. To check on its availability, call Adams at (800) 833-7337.

Since finances play such a crucial role in an adoption, Caughman pointed 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 said. "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."

RELATED SITES
Track your stocks
Note: Pages will open in a new browser window External sites are not endorsed by CNNmoney