Adoptive parents know that the cost of adopting a child is no small undertaking. But a tax credit can help offset the cost of welcoming your new bundle of joy.
For 2017, the federal adoption tax credit is $13,570, and is based on a “cost of living” calculation. For those whose modified adjusted gross income is less than $203,540, you will receive the full tax credit. Adopting families whose modified adjusted gross income is $203,540 to $243,540, will receive a reduced credit. Make more than $243,540? Sorry, you’re ineligible for the tax credit.
So what qualifies as an adoption expense? For the most part, adoption-related fees in an adoption that meets these criteria apply:
– the adopted child is under age 18
– expenses cover domestic or international adoptions
– the adoption does not include surrogacy
– the expenses are not reimbursed through an employee benefit plan
Qualifying expenses include agency fees, legal fees, court costs, travel expenses – including travel-related meals and lodging. Other expenses that can qualify are any costs associated with the adoption process. Some expenses can includes state-mandated requirements.
So when can you claim the tax credit?
Tax credits can be claimed in the year after expenses are incurred for children who are American born, or who are legal resident aliens. So if expenses are incurred over the course of two years, the expenses for each year are handled with each respective tax filing. Even if an adoption is unsuccessful, costs associated with the adoption can be claimed, according to the IRS. If you incur expenses after the adoption, you can claim the credit in the year that the expenses were incurred.
However, there are some differences for international adoptions, which can only be claimed for the year that the adoption is finalized. Additionally, there is no tax credit allowed if an international adoption is unsuccessful.
To claim an adoption tax credit, you have to follow most typical IRS rules for documentation, including keeping receipts, etc., for expenses.
Talk with your tax professional for more information on taking this tax credit, and on tracking your expenses.
For more in the tax credit, here is a link to the IRS page about Adoption Credit and Adoption Assistance Programs: https://www.irs.gov/taxtopics/tc607.html