- Taxes and Adoption
Taxes and Adoption
The tax code can be generous to those who adopt a child.
In fact, it offers two kinds of tax breaks. If you are adopting, you are most likely to use the first one, the adoption credit.
Tax breaks can be worth as much as $11,390, or more
The adoption credit reduces your taxes, dollar for dollar, up to $11,390, for qualified adoption expenses per child. It’s like getting a refund of your adoption expenses.
Guidelines can vary
To qualify for the tax breaks, both the children and the adults adopting them must meet certain requirements. And the rules vary according to whether the adoption involves a child from another country or a child with special needs. Because adopting can take many months, the tax benefits can be spread over more than one year.
Am I eligible for the adoption credit?
You are, if you have spent money to:
- Adopt or attempt to adopt a U.S. child under the age of 18
- Adopt or attempt to adopt a child who is mentally or physically disabled (age limit is waived)
- Successfully complete the adoption of a foreign child (not a U.S. citizen or resident)
Are there any other requirements?
You can not receive the full tax breaks if your modified adjusted gross income is greater than $170,820. (Modified adjusted gross income is essentially your income from all sources, minus some adjustments like alimony paid, but including IRA contributions.)
Both the credit and the exclusion are reduced if adjusted income is above the $170,820 level and the tax breaks disappear altogether when income is $210,820 or more.
The income limit applies whether you are adopting as a single person or a married couple. If you are married, and you each file a tax return separately, you qualify for the credit only under certain conditions. See this IRS publication.
What kind of expenses qualify for the two adoption tax breaks?
All the expenses you pay that are directly connected to the adoption of your child, as long as your child is a qualifying child.
For example, your attorney fees, the adoption agency fees, travel expenses (including meals and lodging) while away from home, that are connected to the adoption, and court fees are all qualifying expenses.
You can't claim the credit or the exclusion for:
- Expenses for which you received a reimbursement by a state, local, or federal government program, by your employer, or by any other person or organization
- Payments you made to someone to be a surrogate parent for your adopted child
- Costs associated with adopting your spouse's child
- Costs you paid for an adoption that isn't considered legal under federal or local law
- Payments you made before 1997
When can I take the tax breaks?
If you adopt a child who is a U.S. citizen or resident, you can claim them in the year you incur the expense, or the year the adoption becomes final, whichever is first.
I attempted to adopt a child, but the adoption was not successful. Can I claim the credit?
Yes, under the following conditions:
- The child is a U.S. citizen or resident. Later in the same year, you had a successful adoption. The expenses for the unsuccessful and the successful adoptions can be added together to obtain the adoption credit.
- You paid the expenses last year and never had a successful adoption. You either didn't attempt another adoption or a later attempt was also not successful.
Example: You paid $5,000 of adoption expenses in 2006. You can take the credit but not until 2007.
No, if the child is not a U.S. citizen or resident; the adoption must be final before expenses can be deducted.
If I can't take all of my credit this year, do I lose it?
No. You can carry your credit over to next year or to later years if you can't use all of it this year. You can carry your credit over as long as five tax years before it expires.
If my credit decreases because of the income limits, can I carry my excess to next year?
No.
Getting identified
Be sure to get a Social Security number for your adopted child. Or if the child has been placed in your home pending final adoption, apply to the IRS for an adoption taxpayer identification number (ATIN). It takes four to eight weeks to receive.
This number is temporary, until the child obtains a Social Security number. It allows the parents to identify the child on their federal tax return and claim the child as a dependent. For more information see this IRS article.
