IRS Adoption Credit Information

Internal Revenue Service tax credits are often used to promote behaviors that are considered beneficial to society. The adoption tax credit encourages adoption by allowing adoptive parents a credit that reduces their tax burden. The credit is a non-refundable credit (meaning the tax credit can't reduce the taxable amount owed to less than zero) but has a high ceiling and can be a welcome benefit to adoptive parents.

Purpose

• The Adoption Tax Credit is intended to reimburse taxpayers for expenses paid that were directly related to the adoption of a qualified child.

How It Works

• The amount of the Adoption Credit for which you qualify is subtracted from your overall tax liability. This reduces the amount of tax for which you're responsible. In order to figure the amount of the credit for which you qualify, you'll need to complete Part II of IRS Form 8839. Once the credit amount is determined, you will enter this amount on line 52 of Form 1040 or line 48 of your 1040NR.

Expenses

• Examples of qualified expenses include attorney's fees, travel expenses, amounts spent for meals and lodging, and court costs. Expenses that do not qualify include those used for the adoption of your spouse's child, those paid by your employer, expenses used for the costs associated with entering into a surrogate arrangement, or any expenses that were paid for by another state or federal program or that were already deducted on your return. In order to be a qualifying child under the credit, the child must be under the age of 18 and incapable of caring for himself.

Limits

• The adoption credit is reduced for taxpayers who earn more than $182,180, and taxpayers who earn in excess of $222,180 do not qualify for the credit. The maximum allowable for the adoption credit is $12,150. A taxpayer may be able to take an increased credit if the adopted child has special needs. For the purposes of the adoption credit, a special needs child is a one who is a U.S. citizen, has been assessed by the state as requiring special assistance from the adoptive parents, or a child who, based on the state's determination, cannot return to the parent's home.

Warnings

• In most cases, if you are married, you must file a joint return to take the credit. You cannot take the adoption credit if your filing status is married filing separately. You also cannot take the credit until the adoption becomes final.