The IRS consolidates a majority of the reporting for adoption-related expenses on Form 8839, Qualified Adoption Expenses. Filers must include every qualified expense from the tax year in question on that form to be eligible for the adoption tax credit. For 2014, the maximum credit adoptive parents are granted is $13,190 per eligible child.
An eligible child is defined as any person who is under the age of 18 or any person who -- regardless of age -- is physically or mentally unable to take care of him- or herself.
“Most parents are adopting children because they love children -- not because they get a tax credit,” said Brian Solik, a New Jersey-based financial adviser who is the father of two adopted children. “So, many of them may not even be aware of this credit.”
According to Solik, any reasonable and necessary expenses directly related to the legal adoption of any child are eligible for reimbursement or refund through the adoption tax credit. Those expenses include court costs, attorney fees, home studies and any traveling expenses related to the adoption.
But, he adds, adoptive parents should not automatically assume they qualify. He says the ceiling amount of the adoption credit is available only if you spent that amount in qualified adoption expenses that were not reimbursed by an employer or state agency or if the adopted person is one with special needs.
If you spent less than the cap, Solik says, you will receive a credit for only for the amount you spent.
If your modified adjusted gross income is more than $194,580, however, your credit is reduced until modified adjusted gross income is $234,580 or more, when the credit is no longer available.