What You Should Know About the Adoption Tax Credit

by | Feb 5, 2020 | Adoptive Families Blog

Adoptive father uses adoption tax credit happily while his wife watchesThe Federal Adoption Tax Credit is an important financing resource for most adoptive parents. Whether you’re just starting to look into adoption, are waiting to adopt, or have recently adopted, it’s smart to learn about the Adoption Tax Credit. That way, after your adoption is finalized, you’ll be able to make the most of the tax credit!

The United States tax code allows for an adoption tax credit up to $14,080 per adopted child per 2019 guidelines. We understand that taxes can be confusing. Even though we’re not tax professionals here at Lifetime, we wanted to share some helpful tips to get you started when you file as a new adoptive parent. Here’s what you need to know about the adoption tax credit.

What Kinds of Adoptions Are Eligible for Tax Credits?

Most types of adoptions are covered with tax credits. Whether you adopt a child from foster care, a domestic adoption agency, or an international adoption agency, you are eligible to receive the credit. If you opt for a special needs adoption, you automatically qualify for the maximum allowed credit, no matter what you spent out of pocket for the adoption.

Most adoptive parents are eligible for the adoption credit, but there are some exceptions. If your income exceeds $251,060 per year, the credit is not available to you according to 2019 figures. The credit is also unavailable to individuals who adopt their stepchildren. Additionally, the adoption credit is only eligible for the adoption of minors under the age of 18. Adult adoptions are not eligible.

Let’s say that a woman discovers her two grandchildren are placed in foster care. She decides to take steps to adopt them formally. Given that this woman makes less than $251,060 per year, she would be eligible to receive an adoption tax credit. In 2019, she would be eligible for a tax credit of $28,160 because there are two children involved.

Which Children Are Considered Special Needs?

When you consider tax credits, it is important to note that the phrase “special needs” has a different meaning than you might think. As far as the tax credit system is concerned, “special needs” refers to any child that is considered difficult to place for adoption.

The IRS may consider a child to be special needs based on their ethnic background, age, minority membership, sibling group, medical condition, or disability.

Adoptive mom files taxes in the kitchen while her husband makes breakfastIs the Adoption Credit Refundable?

No, the adoption tax credit is not refundable. This means you cannot receive it as part of a tax refund.

The good news is that you can carry it forward for five years if necessary. This means that families who pay very little income tax will not see a significant change in their taxes.

What Are Qualifying Adoption Expenses?

To receive the maximum adoption tax credit, you need to know what kinds of costs qualify you for it. Qualifying adoption expenses include necessary adoption fees, attorney fees, court costs, travel expenses, and other costs directly linked to legal adoption.

Keep in mind that eligible fees can be those that are paid for adoption before you even know which child you are going to adopt. For instance, your tax credit may cover the cost of a home study or screening process.

When Should You Claim the Adoption Tax Credit?

Some confusion may exist as to when you can claim an adoption tax credit, especially if the adoption process lasted longer than one year. When you claim the credit, you must consider when you actually paid the expenses, what kind of adoption you had (domestic or international), and when the adoption was legally finalized.

In the case of domestic adoption, you can claim the credit the year following the payments you made—even if the adoption was never finalized at all. The same applies even if you never identified a specific child to adopt. Any money you spent can be claimed after you have spent it.

If you sought out an international adoption, you could claim the adoption expenses the year the adoption is finalized. It seems as if you cannot claim the credit if you paid money, but your international adoption was never finalized. This can make international adoption a bit riskier.

How Can You Claim an Adoption Tax Credit?

If you want to claim an adoption tax credit, you need to complete Form 8839, which is a Qualified Adoption Expenses form. You need to attach the form to your 1040, 1040-SR, or 1040-NR. If you need further instructions to fill out the form or to claim your credit, check out the Instructions for Form 8839 to learn more.

If you have more questions about the adoption tax credit, please speak with a tax professional. You can also learn more by watching Lifetime’s webinar all about the Adoption Tax Credit.

Mardie Caldwell, C.O.A.P.

Written by Mardie Caldwell, C.O.A.P.

Founder of Lifetime Adoption, adoptive mom, adoption expert, and Certified Open Adoption Practitioner (C.O.A.P).

Since 1986, adoption expert Mardie Caldwell has been dedicated to bringing couples and birth parents together in order to fulfill their dreams.

“Many years ago, I was also searching for a child to adopt. We didn’t know where or how to get started. Through research, determination, and a prayer, our dream of a family became reality. I started with a plan, a notebook, assistance from a caring adoption consultant and a lot of hard work; this was my family I was building. We had a few heartaches along the way, but the pain of not having children was worse!

Within weeks we had three different birth mothers choose us. We were overwhelmed and delighted. Many unsettling events would take place before our adoption would be finalized, many months later. Little did I know that God was training and aligning me for the adoption work I now do today. It is my goal to share with our families the methods and plans which succeed and do not succeed. I believe adoption should be affordable and can be a wonderful “pregnancy” for the adoptive couple.

I have also been on both sides of infertility with the loss of seven pregnancies and then conceiving by new technology, giving birth to a healthy daughter. I have experienced first-hand the emotional pain of infertility and believe my experience allows me to serve your needs better.

It is my hope that for you, the prospective parents, your desire for a child will be fulfilled soon.”

Read More About Mardie Caldwell

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