Can I Claim the Adoption Tax Credit?
What Is the Federal Tax Credit for Adopting a Child?
The Adoption Credit is tax credit designed to help parents with the expenses involved in adopting a qualified child (including a child with special needs). A child that qualifies for the Adoption Credit is any child under 18 or a child that lacks the ability to care for him or herself. The credit is subtracted from your federal tax liability but, as of Tax Year 2012, it is no longer refundable.
The Adoption Tax Credit is intended to reimburse many of the various expenses incurred while adopting a child. Any expenses that were previously reimbursed, such as by your employer, may not be counted towards the credit. In addition to the Adoption Credit, there may be qualified expenses paid by your employer that can also be excluded from your taxable income.
What Are Qualified Adoption Expenses?
Qualifying expenses include adoption fees, court costs, attorney fees, traveling expenses (including meals and lodging while away from home), and other expenses directly related to the adoption of a qualified child.
If the adoption process is not completed by the time you file your tax return, the child must be a U.S. citizen or resident in order to qualify for the tax credit. If the adoption becomes final, the adoption credit can be taken for non-U.S. citizens or foreign residents. If the child has special needs and the state determines that the child would not be adopted without assistance, then a taxpayer may be eligible for an increased credit.
How Much Is the Adoption Credit Worth?
The maximum amount of the Adoption Credit to $12,650 per qualifying child for expenses incurred in 2012.
The credit for qualifying adoption expenses is subject to a dollar limit and an income limit. The income limit is based on your adjusted gross income (AGI). If your income is above the AGI limit, it may be reduced by a certain percentage or, if above the maximum limit, the credit may be eliminated in its entirety. Due to The Affordable Care Act, income limits for the Adoption Credit will be adjusted for inflation.
Unfortunately, as of 2012, the Adoption Tax Credit is no longer refundable. But there is good news: you can "save" any unused portion of your credit and carry it forward to reduce your tax for up to 5 years.
How to Claim the Adoption Tax Credit
The Adoption Tax Credit may be claimed on a tax return by any qualifying taxpayer with a filing status of Married, Widow(er), or Head-of-Household by using Form 8839, Qualified Adoption Expenses efile it. If you are married, you must generally file a joint return to claim the adoption credit. If your filing status is Married Filing Separately, you can take the credit only if you meet special requirements.
When you prepare your tax return on efile.com, the eFile software will automatically select and complete the correct form for you.
Due to increased documentation requirements introduced by the Affordable Care Act (you must include one or more adoption-related documents with your tax return), taxpayers claiming the Adoption Tax Credit will generally have to file their 2012 Tax Returns by mail. You can still use efile.com to prepare and print your return, but you will need to mail a paper copy to the IRS. It is easy to print a completed return from your efile.com account.
See what other tax credits and tax deductions you may qualify for.