Adoption Credit

You may be able to take a tax credit of up to $10,160 for qualifying expenses paid to adopt an eligible child. A credit of up to $10,160 may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses.

If your modified adjusted gross income (AGI) is more than $152,390, your credit is reduced. If your modified AGI is $192,389 or more, you cannot claim the credit.

CAUTION! The amount of expenses paid or in-curred before 2002 that can be taken into account is limited to the pre-2002
dollar limits. The limit on these expenses is $5,000 ($6,000 in the case of a child with special needs, defined in publication 17).

Qualifying expenses. Qualifying adoption expenses are 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 whose principal purpose is for, the legal adoption of an eligible child.

Nonqualifying expenses. Qualifying adoption expenses do not include expenses:

  • That violate state or federal law,
  • For carrying out any surrogate parenting arrangement,
  • For the adoption of your spouse’s child,
  • Paid using funds received from any federal, state, or local program,
  • Allowed as a credit or deduction under any other federal income tax rule, or
  • Paid or reimbursed by your employer or any other person or organization.

Eligible child. The term “eligible child” means any individual:

  1. Under 18 years old, or
  2. Physically or mentally incapable of caring for himself or herself.

Child with special needs. An eligible child is a child with special needs if:

  1. He or she is a citizen or resident of the United States (including U.S. possessions) and
  2. A state (including the District of Columbia) determines that the child cannot or should not be returned to his or her parents’ home and probably will not be adopted unless adoption assistance is provided to the adoptive parents.

Factors used by states to determine if a child has special needs could include:

  • The child’s ethnic background,
  • The child’s age,
  • Whether the child is a member of a minority or sibling group, or
  • Whether the child has a medical condition or physical, mental, or emotional handicap.

Foreign child. If the child is not a U.S. citizen or resident, you cannot take the credit unless the adoption becomes final.

When to claim the credit. Generally, for any year before the adoption becomes final, you take the credit in the year after your qualified expenses are paid or incurred.

See IRS Publication 968 for more specific information on when to claim the credit.


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