The Adoption Tax Credit: Eligibility, Qualifying & Claiming

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Understanding the Adoption Tax Credit

The adoption credit is claimed on your tax return and given to those that adopt a qualifying child and pay out-of-pocket expenses to do so. Form 8839 is used to figure the total amount of qualifying adoption expenses, counting any amount spent in the previous year toward the same adoption effort. This credit is subtracted from your tax liability. You may also exclude amounts paid by an employer for the adoption.

Eligibility for Adoption Tax Credit

Those that adopt a qualifying child and pay out-of-pocket expenses are eligible to take the adoption credit. A qualifying child is under 18, or is “physically or mentally incapable of caring for himself or herself (“Topic”),” as well as a U.S. citizen or resident.

Qualifying Adoption Expenses

Qualifying adoption expenses are “reasonable and necessary adoption fees (“Topic”),” including court costs and attorney fees, traveling expenses, including money spent on lodging and food, and adoption fees. Any expenses that are directly related to the adoption of a child are eligible as qualifying adoption expenses. If you adopt a special needs child you may claim the full amount of the credit without needing to calculate the actual expenses paid.

Claiming Adoption Credit

To claim the adoption credit, file Form 8839, Qualifying Adoption Expenses, along with your Form 1040 or 1040A. Instructions are also available on the Internal Revenue Service website.

The year you claim the adoption credit depends on whether the child is U.S. citizen or resident alien, or a foreign national, as well as when the adoption was finalized. If the child is a U.S. citizen or resident alien the following applies: file the year after expenses were paid if the expenses occurred the year after the adoption was finalized or before the adoption was finalized; file the year expenses were paid if the expenses occurred the same year the adoption was finalized. If the child is a foreign national, only take the adoption credit in the year the adoption became finalized.

Adoption Credit Amounts and Phase-Out Ranges

The adoption credit amount for 2009 is $12,150 per child. The credit is reduced if your modified adjusted gross income is within the range of $182,180 to $222,180. Once your modified AGI is above the maximum amount, you will not receive a credit.

Children without Social Security Number

If you do not have the child’s social security number or are unable to obtain it you must request an Adoption Taxpayer Identification Number (ATIN). This will allow you to claim the child as a dependent and claim the credit due to you. To obtain an ATIN, submit Form W-7A, the Application for Taxpayer Identification Number for Pending U.S. Adoptions.

Filing your Taxes

Chances are that the adoption credit isn’t the only credit or exemption you can claim this year. When it’s time to file your taxes make sure you check your return for commonly overlooked tax deductions. There are many tax credits that people forget to claim, such as the child and dependent care credit and the new first-time homebuyer credit. Claiming all the credits and exemptions you qualify for will save you thousands every year.

Forms

Form 8839 Qualifying Adoption Expenses

Form W-7A Application for Taxpayer Identification Number for Pending U.S. Adoptions

Form 1040 U.S. Individual Income Tax Return

Resources

“Dependents and Exemptions.” IRS.gov. 01 December 2008. 29 March 2009. https://www.irs.gov/faqs/faq/0,,id=199705,00.html

“Topic 607 - Adoption Credit.” IRS.gov. 26 February 2009. 29 March 2009. https://www.irs.gov/taxtopics/tc607.html