If you adopt a child, you may qualify for a federal income tax credit of up to $13,170 for expenses related to the adoption. The Affordable Care Act increased the amount of the credit and made it refundable. If you are carrying forward an adoption credit from 2005 to 2009, the carryover is also refundable starting in 2010.
You can claim the adoption credit for the expenses related to adopting a child under age 18 or any person who is physically or mentally disabled and unable to care for him or herself.
Expenses that qualify for the adoption credit include reasonable and necessary expenses for adoption fees, court costs, attorney fees, and travel expenses, including meals and lodging while away from home. If you adopt a child from outside the U.S., re-adoption expenses qualify for the credit.
Expenses for adopting your spouse’s children do not qualify for the credit. And if you are reimbursed by your employer or other organization or receive funds under a federal, state or local program, your adoption expenses would not qualify for the credit. But if you receive adoption benefits from your employer, you may be able to exclude them from your taxable income.
You can claim the credit for adoption expenses you paid last year or this year if the adoption became final this year. If the adoption became final prior to the current year and you incurred adoption expenses this year, you can claim the credit this year. If the child is a U.S. citizen or resident when you began the adoption effort, you can claim the credit for your expenses even if the adoption never becomes final. But if the child is not a U.S. citizen or resident, you cannot claim the credit unless the adoption becomes final.
If you adopt a special needs child, you may be able to claim a credit even if you do not pay any adoption expenses. According to the IRS, a special needs child must be eligible as an adopted child for purposes of the adoption credit and must be a U.S. citizen or resident. The state must have determined that the child cannot or should not be returned to his or her parents’ home and will probably not be adopted unless assistance is provided.
How to file
To claim the adoption tax credit or exclusion of employer-provided adoption benefits you have to file a paper return with Form 8839, Qualified Adoption Expenses and documentation such as the final adoption decree, the placement agreement from an authorized adoption agency, court documents, and the state’s determination for special needs children. You can still use the IRS Free File, but you will have to print out the forms and mail them along with the required documentation.
The adoption credit begins to phase out if your modified adjusted gross income is more than $182,520 and is completely phased out if your modified adjusted gross income is $222,250 or more.
Form 8839 – Qualified Adoption Expenses
Free File – IRS
Instructions for Form 8839 – IRS
Topic 607 – Adoption Credit – IRS