ADOPTION
See also: IRS publication Adoption Benefits FAQs
Top Ten Facts about Adoption Tax Benefits
If you adopted or tried to adopt a child in 2014, you may qualify for a tax credit. If your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax. Here are ten things you should know about adoption tax benefits.
1. Credit or Exclusion. The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.
2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2014 is $13,190 per child.
3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2014, you can use it to reduce your taxes for 2015. You can do this for up to five years, or until you fully use the credit, whichever comes first.
4. Eligible Child. An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.
5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.
6. Domestic or Foreign Adoptions. In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.
7. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn't pay any qualified adoption expenses.
8. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
9. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.
1. Credit or Exclusion. The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.
2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2014 is $13,190 per child.
3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2014, you can use it to reduce your taxes for 2015. You can do this for up to five years, or until you fully use the credit, whichever comes first.
4. Eligible Child. An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.
5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.
6. Domestic or Foreign Adoptions. In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.
7. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn't pay any qualified adoption expenses.
8. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
9. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.
Ten Facts about Adoption-Related Tax Savings
Adoption can create new families or expand existing ones. The expenses of adopting a child may also lower your federal tax. If you recently adopted or attempted to adopt a child, you may be eligible for a tax credit. You may also be eligible to exclude some of your income from tax. Here are ten things the IRS wants you to know about adoption tax benefits.
1. The maximum adoption tax credit and exclusion for 2012 is $12,650 per eligible child.
2. To be eligible, a child must generally be under 18 years old. There is an exception to this rule for children who are physically or mentally unable to care for themselves.
3. For 2012, the tax credit is nonrefundable. This means that, while the credit may reduce your tax to zero, you cannot receive any additional amount in the form of a refund.
4. If your credit exceeds your tax, you may be able to carry forward the unused credit. This means that if you have an unused credit amount in 2012, you can use it to reduce your taxes for 2013. You can carryover an unused credit for up to five years or until you fully use the credit, whichever comes first.
5. Use Form 8839, Qualified Adoption Expenses, to claim the adoption credit and exclusion. Although you cannot file your tax return with Form 8839 electronically, the IRS encourages you to use e-file software to prepare your return. E-file makes tax preparation easier and accurate. You can then print and mail your paper federal tax return to the IRS.
6. Adoption expenses must directly relate to the legal adoption of the child and they must be reasonable and necessary. Expenses that qualify include adoption fees, court costs, attorney fees and travel costs.
7. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you did not pay any qualified adoption expenses. See the instructions for Form 8839 for more information about this rule.
8. If your employer has a written qualified adoption assistance program, you may be eligible to exclude some of your income from tax.
9. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you cannot claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
10. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on your income..
1. The maximum adoption tax credit and exclusion for 2012 is $12,650 per eligible child.
2. To be eligible, a child must generally be under 18 years old. There is an exception to this rule for children who are physically or mentally unable to care for themselves.
3. For 2012, the tax credit is nonrefundable. This means that, while the credit may reduce your tax to zero, you cannot receive any additional amount in the form of a refund.
4. If your credit exceeds your tax, you may be able to carry forward the unused credit. This means that if you have an unused credit amount in 2012, you can use it to reduce your taxes for 2013. You can carryover an unused credit for up to five years or until you fully use the credit, whichever comes first.
5. Use Form 8839, Qualified Adoption Expenses, to claim the adoption credit and exclusion. Although you cannot file your tax return with Form 8839 electronically, the IRS encourages you to use e-file software to prepare your return. E-file makes tax preparation easier and accurate. You can then print and mail your paper federal tax return to the IRS.
6. Adoption expenses must directly relate to the legal adoption of the child and they must be reasonable and necessary. Expenses that qualify include adoption fees, court costs, attorney fees and travel costs.
7. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you did not pay any qualified adoption expenses. See the instructions for Form 8839 for more information about this rule.
8. If your employer has a written qualified adoption assistance program, you may be eligible to exclude some of your income from tax.
9. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you cannot claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
10. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on your income..
Expanded Adoption Tax Credit Still Available for Extension Filers
If you adopted a child last year and requested an extension of time to file your 2011 taxes, you may be able to claim the expanded adoption credit on your federal tax return. The Affordable Care Act temporarily increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.
Here are eight things to know about this valuable tax credit:
1. The adoption credit for tax year 2011 can be as much as $13,360 for each effort to adopt an eligible child. You may qualify for the credit if you adopted or attempted to adopt a child in 2010 or 2011 and paid qualified expenses relating to the adoption.
2. You may be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.
3. The credit for qualified adoption expenses is subject to income limitations, and may be reduced or eliminated depending on your income.
4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child who is under 18 years old, or physically or mentally incapable of caring for himself or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
5. To claim the credit, you must file a paper tax return and Form 8839, Qualified Adoption Expenses, and attach all supporting documents to your return. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children. You can use IRS Free File to prepare your return, but it must be printed and mailed to the IRS. Failure to include required documents will delay your refund.
6. If you filed your tax returns for 2010 or 2011 and did not claim an allowable adoption credit, you can file an amended return to get a refund. Use Form 1040X, Amended U.S. Individual Income Tax Return, along with Form 8839 and the required documents to claim the credit. You generally must file Form 1040X to claim a refund within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
7. The IRS is committed to processing adoption credit claims quickly, but must also safeguard against improper claims by ensuring the standards for receiving the credit are met. If your return is selected for review, please keep in mind that it is necessary for the IRS to verify that the legal criteria are met before the credit can be paid. If you are owed a refund beyond the adoption credit, you will still receive that part of your refund while the review is being conducted.
8. The expanded adoption credit provisions available in 2010 and 2011 do not apply in later years. In 2012 the maximum credit decreases to $12,650 per child and the credit is no longer refundable. A nonrefundable credit can reduce your tax, but any excess is not refunded to you.
Here are eight things to know about this valuable tax credit:
1. The adoption credit for tax year 2011 can be as much as $13,360 for each effort to adopt an eligible child. You may qualify for the credit if you adopted or attempted to adopt a child in 2010 or 2011 and paid qualified expenses relating to the adoption.
2. You may be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.
3. The credit for qualified adoption expenses is subject to income limitations, and may be reduced or eliminated depending on your income.
4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child who is under 18 years old, or physically or mentally incapable of caring for himself or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
5. To claim the credit, you must file a paper tax return and Form 8839, Qualified Adoption Expenses, and attach all supporting documents to your return. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children. You can use IRS Free File to prepare your return, but it must be printed and mailed to the IRS. Failure to include required documents will delay your refund.
6. If you filed your tax returns for 2010 or 2011 and did not claim an allowable adoption credit, you can file an amended return to get a refund. Use Form 1040X, Amended U.S. Individual Income Tax Return, along with Form 8839 and the required documents to claim the credit. You generally must file Form 1040X to claim a refund within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
7. The IRS is committed to processing adoption credit claims quickly, but must also safeguard against improper claims by ensuring the standards for receiving the credit are met. If your return is selected for review, please keep in mind that it is necessary for the IRS to verify that the legal criteria are met before the credit can be paid. If you are owed a refund beyond the adoption credit, you will still receive that part of your refund while the review is being conducted.
8. The expanded adoption credit provisions available in 2010 and 2011 do not apply in later years. In 2012 the maximum credit decreases to $12,650 per child and the credit is no longer refundable. A nonrefundable credit can reduce your tax, but any excess is not refunded to you.
Six Facts for Adoptive Parents
If you paid expenses to adopt an eligible child in 2011, you may be able to claim a tax credit of up to $13,360.
Here are six things the IRS wants you to know about the expanded adoption credit.
1. The Affordable Care Act increased the amount of the credit and made it refundable, which means you can get the credit as a tax refund even after your tax liability has been reduced to zero.
2. For tax year 2011, you must file a paper tax return, Form 8839, Qualified Adoption Expenses, and attach documents supporting the adoption. Taxpayers claiming the credit will still be able to use IRS Free File or other software to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.
3. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and/or 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 $185,210, your credit is reduced. If your modified AGI is $225,210 or more, you cannot take the credit.
Here are six things the IRS wants you to know about the expanded adoption credit.
1. The Affordable Care Act increased the amount of the credit and made it refundable, which means you can get the credit as a tax refund even after your tax liability has been reduced to zero.
2. For tax year 2011, you must file a paper tax return, Form 8839, Qualified Adoption Expenses, and attach documents supporting the adoption. Taxpayers claiming the credit will still be able to use IRS Free File or other software to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.
3. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and/or 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 $185,210, your credit is reduced. If your modified AGI is $225,210 or more, you cannot take the credit.
Adoption Credit
You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child (including a child with special needs). The adoption credit is an amount subtracted from your tax liability. For expenses paid prior to the year the adoption becomes final, the credit generally is allowed for the year following the year of payment. A taxpayer who paid qualifying expenses in the current year for an adoption which became final in the current year, may be eligible to claim the credit for the expenses on the current year return, in addition to credit for expenses paid in a prior year. The adoption credit is not available for any reimbursed expense. In addition to the credit, certain amounts paid by your employer for qualifying adoption expenses may be excludable from your gross income.
For both the credit or the exclusion, qualifying expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to and for which the principal purpose is the legal adoption of an eligible child. An eligible child must be under 18 years old, or be physically or mentally incapable of caring for himself or herself. The adoption credit or exclusion cannot be taken for a child who is not a United States citizen or resident unless the adoption becomes final. A taxpayer also may be eligible to take an increased credit or exclusion for expenses related to the adoption of a child with special needs if the child otherwise meets the definition of qualifying child, is a United States citizen or resident and a state determines that the child cannot or should not be returned to his or her parent's home and probably will not be adopted unless assistance is provided. The credit and exclusion for qualifying adoption expenses are each subject to a dollar limit and an income limit.
Under the dollar limit the amount of your adoption credit or exclusion is limited to the dollar limit for that year for each effort to adopt an eligible child. If you can take both a credit and an exclusion, this dollar amount applies separately to each. For example, if we assume the dollar limit for the year is $10,000 and you paid $9,000 in qualifying adoption expenses for a final adoption, while your employer paid $4,000 of additional qualifying adoption expenses, you may be able to claim a credit of up to $9,000 and also exclude up to $4,000.
The dollar limit for a particular year must be reduced by the amount of qualifying expenses taken into account in previous years for the same adoption effort.
The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (modified AGI). If your modified AGI is below the beginning phase out amount for the year, the income limit will not affect your credit or exclusion. If your modified AGI is more than the beginning phase out amount for the year, your credit or exclusion will be reduced. If your modified AGI is above the maximum phase out amount for the year, your credit or exclusion will be eliminated.
Generally, if you are married, you must file a joint return to take the adoption credit or exclusion. If your filing status is married filing separately, you can take the credit or exclusion only if you meet special requirements.
For both the credit or the exclusion, qualifying expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to and for which the principal purpose is the legal adoption of an eligible child. An eligible child must be under 18 years old, or be physically or mentally incapable of caring for himself or herself. The adoption credit or exclusion cannot be taken for a child who is not a United States citizen or resident unless the adoption becomes final. A taxpayer also may be eligible to take an increased credit or exclusion for expenses related to the adoption of a child with special needs if the child otherwise meets the definition of qualifying child, is a United States citizen or resident and a state determines that the child cannot or should not be returned to his or her parent's home and probably will not be adopted unless assistance is provided. The credit and exclusion for qualifying adoption expenses are each subject to a dollar limit and an income limit.
Under the dollar limit the amount of your adoption credit or exclusion is limited to the dollar limit for that year for each effort to adopt an eligible child. If you can take both a credit and an exclusion, this dollar amount applies separately to each. For example, if we assume the dollar limit for the year is $10,000 and you paid $9,000 in qualifying adoption expenses for a final adoption, while your employer paid $4,000 of additional qualifying adoption expenses, you may be able to claim a credit of up to $9,000 and also exclude up to $4,000.
The dollar limit for a particular year must be reduced by the amount of qualifying expenses taken into account in previous years for the same adoption effort.
The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (modified AGI). If your modified AGI is below the beginning phase out amount for the year, the income limit will not affect your credit or exclusion. If your modified AGI is more than the beginning phase out amount for the year, your credit or exclusion will be reduced. If your modified AGI is above the maximum phase out amount for the year, your credit or exclusion will be eliminated.
Generally, if you are married, you must file a joint return to take the adoption credit or exclusion. If your filing status is married filing separately, you can take the credit or exclusion only if you meet special requirements.