Adoption Expenses

February 17th, 2011

If you had expenses in 2010 that were related to the adoption of a qualified child (under the age of 18 or someone who is physically or mentally incapable of taking care of themself), you may be elibigle for a refundable tax credit of up to $13,170.00 per qualified child or person.  “Refundable” means that you will receive the credit even if you do not have a tax liability.  For example, if your tax liability is $10,000 and your credit is $12,000, with a nonrefundable adoption credit the tax credit would reduce your tax liability to $ 0.00 and you would be required to carry the remaining $2,000 tax credit forward for your tax return next year.  In the same situation with a refundable adoption tax credit, your tax liability would be reduced to zero, but you will also receive a tax refund for $2,000.00 which is the amount  by which your tax credit amount exceeds your tax return liability.

If you believe that your 2010 adoption expenses will qualify, you’ll need to complete Form 8839 (Qualified Adoption Expenses) and attach the completed form to your 2010 Federal tax return.  Be sure to review your state income tax return instructions to determine if your state follows the Federal law.  Written documentation is required to support your claim.  Therefore, you can not e-file.  Instead, you will  have to paper-file your 2010 tax return.

Qualified adoption expenses are reasonable and necessary adoption fees. They include:

  • court costs,
  • attorney fees,
  • traveling expenses (including amounts spent for meals and lodging while away from home), and
  • other expenses directly related to the legal adoption of an eligible child.

There are additional points to be considered:

  • The instructions for Form 8839 are only eight pages in length.  Links to the form itself, the instructions, and “Frequently Asked Questions” (FAQs) are provided below;
  • The full amount of the adoption tax credit will begin to be reduced if your total “modified adjusted gross income” reaches $182,252.00 and will be completely eliminated at the $222,520.00 income level;
  • The tax credit must be reduced (offset) by employer provided adoption benefits;
  • Adoption expenses associated with the adoption of your spouse’s children or a surrogate parenting arrangement are not eligible to be included;
  • Expenses which are associated with a foreign adoption (where the child was not a U.S. citizen or resident at the time the adoption process began) will qualify but only if you actually adopted the child.

 

Seven Facts About the Expanded Adoption Credit 

You may be able to take a tax credit of up to $13,170 for qualified expenses paid to adopt an eligible child. The Affordable Care Act increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.

Here are seven things the IRS wants you to know about the expanded adoption credit.

  1. Beginning in tax year 2010 the credit is refundable, meaning that you can get it even if you owe no tax.
  2. For tax year 2010 you must file a paper tax return and Form 8839, Qualified Adoption Expenses, to get the credit and you must attach documents supporting the adoption.
  3. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children.
  4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
  5. An eligible child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.
  6. If your modified adjusted gross income is more than $182,520, your credit is reduced. If your modified AGI is $222,520 or more, you cannot take the credit.
  7. Taxpayers claiming the credit will still be able to use IRS Free File to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.

For more information see the Adoption Benefits FAQ page available at http://www.irs.gov or the instructions to IRS Form 8839, Qualified Adoption Expenses, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676). 

Links:

Back to Top

Posted by Bill Seabrooke