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The Berman Buzz

Tax Tip Tuesday: The Adoption Tax Credit Helps Families with Adoption-Related Expenses

The Adoption Tax Credit lets families claim up to $14,890 in eligible adoption expenses for each qualified child. It applies to international, domestic, private, and public foster care adoptions.

Tax benefits for adoption include credits and exclusions for qualified expenses paid to adopt an eligible child. These credits and exclusions are each subject to income limitations based on your modified adjusted gross income (MAGI). Credits are nonrefundable and will reduce your tax liability. However, it will not result in a refund. Therefore, you can transfer the leftover credit forward and claim it on future tax returns for up to five years.

Who is Considered an Eligible Child

An eligible child is an individual who is under the age of 18 or is physically or mentally incapable of self-care.

A child the state has determined to have special needs is generally eligible for the maximum amount of credit. "Children with special needs" for adoption credit purposes are generally children the state's child welfare agency considers difficult to place.

Qualified Adoption Expenses

For credit and exclusion purposes, qualified adoption expenses include:

  • Reasonable and necessary adoption fees

  • Court costs and legal fees

  • Traveling expenses, including meals and lodging while away from home

  • Other expenses directly related to the legal adoption of an eligible child

Generally, the tax credit is allowed whether the adoption is domestic or foreign. However, the timing rules for claiming the credit differ, depending on the type of adoption.

Some expenses may be deductible even if paid before an eligible child is identified. For example, prospective adoptive parents might pay for a home study at the beginning of the process. These parents can claim the fees as qualified adoption expenses.

Qualified adoption expenses do not include the costs a taxpayer pays to adopt their spouse's child. However, fees paid by a same-sex second parent or co-parent may be eligible.

Form 8839 and Instructions

To claim the adoption credit or exclusion, complete Form 8839, Qualified Adoption Expenses, and attach it to Form 1040, U.S. Individual Income Tax Return, Form 1040-SR, U.S. Tax Return for Seniors, or Form 1040-NR, U.S. Nonresident Alien Income Tax Return. The instructions for Form 8839 contain additional information about the adoption credit and exclusion. You are no longer required to attach the adoption documentation with your tax return; however, you must keep the documentation as part of your records.

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