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2018 Adoption Tax Credit Information

Some adoptive families find that adopting a child can put a strain on family finances. It’s understandable; all of the services that go into an adoption can make money a little stressful. But did you know you may be eligible for adoption tax benefits? There are several available adoption tax credits and benefits that may be able to offset your qualified adoption expenses.

The Federal Adoption Tax Credit

Some adoption costs can be offset by utilizing the Federal Adoption Tax Credit for all qualifying adoption expenses. In January 2013, the Federal Adoption Tax Credit was made permanent. The adoption credit is not refundable, which means that only those individuals with tax liability (taxes owed) will benefit.

Below is a table outlining the maximum amount available for the 2018 Federal Adoption Tax Credit and a few previous years.

Tax Year

Maximum Amount Available*

Adoption Tax Credit 2014

$13,190

Adoption Tax Credit 2015

$13,400

Adoption Tax Credit 2016

$13,460

Adoption Tax Credit 2017

$13,570

Adoption Tax Credit 2018

$13,840

*The maximum amount available will continue to grow each year with the cost of living. It should also be noted that the maximum amount available is per child. Additionally, because the adoption tax credit is nonrefundable, if your liability is less than your total available credit, you may only use what you owe in taxes until the following year. For example, if your liability is $8,000 and your credit is $13,840, you may use only $8,000 credit for that year. However, you may carry forward the $5,840 unused credit for up to five years.

However, the adoption tax credit for special needs children (those involving children who are deemed hard to place by a child welfare agency) will remain flat, allowing those families to claim the maximum credit regardless of expenses.

The adoption tax credit income limit is based on modified adjusted gross income (MAGI) and is recalculated each year based on current cost of living. For the 2018 Adoption Tax Credit, the maximum amount available will begin to phase out for families with MAGI above $207,580 and will be unavailable to families with incomes around $247,580 or above.

Adoptive parents who work for companies with an adoption assistance program also receive a tax break. Parents can receive up to $13,400 in reimbursement from their employer for adoption expenses without paying taxes on that benefit. However, you cannot double-dip, meaning you cannot take a tax credit for adoption expenses already reimbursed by your company. Speak with a tax professional to make sure this is correctly noted in your W-2 Form, and read Employer-Provided Adoption Benefits to learn more about these adoption assistance programs.

For the most up-to-date information about the adoption tax credit, follow the American Adoptions' blog or AdoptionTaxCredit.org.

What Are Qualifying Adoption Expenses?

The IRS writes: “Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child.”

Qualified adoption expenses tax deductions include:

  • Adoption fees,

  • Attorney fees,

  • Court costs,

  • Travel expenses (including meals and lodging) while away from home, and

  • Re-adoption expenses relating to the adoption of a foreign child.

Funds allowed as a credit or deduction under any other provision cannot be applied toward the adoption tax credit. Qualifying expenses must be accrued in a domestic, international or foster care adoption; surrogacy or stepparent adoptions do not qualify for the tax credit. For a full list of expenses that the IRS does not qualify, visit their website.

For domestic adoptions, you can claim the credit for adoption-related expenses in the year the adoption is completed. If the adoption is not completed, you can claim the credit the following year. Be sure to keep a close record of your adoption, as the adoption tax credit could be audited by the IRS for authenticity. You’ll want to be ready with documents such as:

  • The final adoption decree

  • A placement agreement from an authorized agency

  • Court documents

  • A state’s determination for special-needs children, if applicable

Follow these links to Form 8839 and Instructions to File Form 8839 on the IRS website to learn how to file for an adoption tax credit and for information regarding required attachments.

State Adoption Tax Credits

A number of states also offer an additional adoption tax credit to their residents. If you live in a state that offers a state-level adoption tax credit (amounts vary by state), ask your tax professional if you may receive these credits as well.

Adoption Disruption - Tax Credit Benefit Still Applies

Families who experience a disrupted adoption (a situation that did not end in a completed adoption) may also benefit from the adoption tax credit. A family that qualifies for the adoption tax credit may also deduct qualifying adoption expenses from a disrupted adoption. However, families must wait one year before filing for the credit. The maximum credit level also still applies — no matter how many adoptions or disruptions a family experienced during the year. Please refer to a tax professional to see if your family is eligible.

Dependency Tax Exemption

Adoptive parents may take the same dependency exemption on their income taxes for adopted children (and children placed with them in a not-yet-finalized adoption) as they would for biological children. The exemption reduces taxable income. Families must provide more than half of a child's support to list the exemption.

Adoption Tax Credit Before Finalization

Every year, adoptive families ask if they can file taxes without their child’s social security number, which is typically received after the adoption is finalized.

Your adoption attorney should apply for an SSN along with the final amended birth certificate after the finalization court hearing. If you do not have these items yet, you or your accountant and/or tax representative can apply for a temporary tax identification number for the baby. You can file your taxes with that number. Here is a link to Form W-7A for information about obtaining a temporary tax ID number. You can also search the IRS website for Adoption Taxpayer Identification Number information.

To speak with an adoption specialist for more information about the Federal Adoption Tax Credit, please contact American Adoptions at 1-800-ADOPTION. 

*DISCLAIMER: American Adoptions does not offer tax advice and recommends that you talk to your tax professional for specific information on how the Adoption Tax Credit can benefit your family.   

Disclaimer
Information available through these links is the sole property of the companies and organizations listed therein. America Adoptions, Inc. provides this information as a courtesy and is in no way responsible for its content or accuracy.

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Frequently Asked Questions

Do we need to retain our own attorney?

No, American Adoptions has established relationships with some of the best adoption attorneys in the nation. Because adoption laws vary from state to state and between counties, it is important to utilize the services of an adoption attorney who specializes in the state where the adoption will finalize, which is unknown until you match with an expectant mother. You have the right to retain your own attorney, but doing so may be an additional, unnecessary expense.

Can we choose the gender of our baby?

American Adoptions accepts a limited number of families into our gender-specific program. Please contact us at 1-800-ADOPTION to learn whether we are currently accepting families into this program. With this option, families pay an additional Gender-Specific Fee to help our agency locate and work with birth mothers meeting this additional criterion. This fee is in addition to other program fees and covers additional advertising. The fee is not considered part of your adoption budget. Please note that gender specificity will likely increase your wait time significantly.

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