Financial

Adoption Tax Credit

What is a tax credit and how much is it?

A credit is a sum deducted from the total amount a taxpayer owes to the government and is not just a simple reduction of income. The Federal Adoption Tax Credit cap for tax year 2016 is $13,460 per eligible child’s adoption. The cap for 2015 is $13,400. The credit includes all qualified adoption expenses.

What are qualified adoption expenses?

Reasonable and necessary adoption fees, travel (including lodging and meals), attorney fees, court costs and other expenses related to, and whose principal purpose is for, the legal adoption of an eligible child.

Who qualifies for the tax credit?

An eligible child is age 17 or younger. For 2016, persons with modified adjusted gross incomes of $201,920 or less qualify for the full credit.  The credit is then a sliding scale before phasing out at a modified adjusted gross income of $241,920.  For 2015, persons with modified adjusted gross incomes of $201,010 or less qualify for the full credit. The credit is then a sliding scale before phasing out at modified adjusted gross incomes of $241,010.

How does the credit work?

The credit for 2010 and 2011 was refundable regardless of tax liability and also covered credits remaining from five previous years. For 2012 and after the credit can be applied against tax liability for that year or carried forward five years until expenses reach the cap, whichever comes first.

When can the tax credit be claimed?

International adoptions must be finalized. Some adoptions are considered final in the child’s country of origin and others must be completed or re-finalized in the U.S. in order to qualify for the credit.

When does the credit expire?

The adoption credit itself was made permanent in 2013, but the refundable aspect of the program was not extended.

Additional resources:
Link to IRS topic 607 on the Adoption Tax Credit
http://www.irs.gov/taxtopics/tc607.html

Link to IRS form 8839 pdf to claim the credit
http://www.irs.gov/pub/irs-pdf/f8839.pdf

Link to IRS form 8839 instructions
http://www.irs.gov/pub/irs-pdf/i8839.pdf

Adoptive Families Magazine Articles on Tax Credit
http://www.adoptivefamilies.com/articles.php?aid=377

Additional information about the adoption tax credit can be found here:
http://taxes.about.com/od/deductionscredits/qt/adoptioncredit.htm

The above information is intended as a summary and is not a substitute for professional tax or legal advice. Please consult a tax professional about your specific situation.