Adoption Tax Credit Information

Adoption credit

The Internal Revenue Service allows individuals to claim a tax credit for eligible adoption expenses on their federal tax returns. The credit is claimed on IRS Form 8839. A credit of up to $12,500 per adopted child is allowed for 2009. Additionally, $12,500 per child of employer adoption benefits can be excluded from the individual's income.

Qualified Adoption Expenses

Qualified adoption expenses include attorney fees, court fees, adoption agency fees, costs for re-adoption of a foreign child, and travel during the course of the adoption process. Qualified adoption expenses do not include amounts received through employer benefit programs or other grants, expenses incurred during a surrogacy relationship, or costs to adopt a spouse's child.

Credit Eligibility

Individuals filing a federal tax return as single, head of household, qualifying widow(er) or married filing joint are eligible for the adoption credit. The credit is not available when the parties on the tax return report adjusted gross income of $222,180. This threshold is for tax year 2009. Check the IRS website for prior or future income limitations. For taxpayers using the married / filing separately status, the credit is available if the adjusted gross income level previously stated is not exceeded, if the child lived in the person's home for more than half the year, if the parties were legally separated and lived apart during the last six months of 2009, and if the person claiming the credit provided more than half the cost of maintaining his or her home. All conditions must be met for the credit to be allowed.

U.S. Adoptions

In the case of domestic adoptions, the credit is claimed according to when payments were made. If the payments were made before the adoption was finalized, the credit is claimed the tax year after payment was made. If the payments were made in the year the adoption was finalized, the credit is claimed the tax year the adoption was finalized. If the payments were made after finalization of the adoption, the credit is claimed in the year payment was made. In the event of a failed domestic adoption, a credit may be claimed for the costs incurred in the year the adoption failed.

Foreign Adoptions

For foreign adoptions, the credit is claimed for the year the adoption is finalized. Costs incurred in earlier tax years are included in the total costs for claiming the credit. For example, if a couple began an adoption in 2009 and it was finalized in 2009, the credit would be claimed on their 2009 tax return. If the adoption were not finalized until 2010 and costs were incurred in 2009 and 2010, all qualified adoption expenses would be included in the costs used to claim the credit on their 2010 tax return. Any costs incurred after the adoption is finalized can be claimed in the tax year the payments were made.

Credit Carry-Forwards

The adoption credit is used to reduce the amount of your tax liability. Because an individual's tax liability can not be less than zero, there are cases in which the taxpayer will have an unused portion of the credit. The unused credit is carried forward to subsequent tax years and is used to offset the tax liability until either the credit is completely used or five years have elapsed, whichever happens first.

References

• Internal Revenue Service: Form 8839 Instructions

Resources

• Internal Revenue Service: Form 8839 Qualified Adoption Expenses