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Answers to Seven Common Questions about the Adoption Tax Credit

Answers to Seven Common Questions about the Adoption Tax Credit

When I began my adoption journey, and finally decided on domestic agency adoption over international or other types, I was overwhelmed with how I would pay for it. I believed that adoption was for the privileged. Wealthy people even. Those with connections, perhaps. I was dead wrong. The reality is if I wanted to build a family, I had to figure out how to come up with the big bucks. Domestic adoption through an agency or using an adoption attorney can range anywhere from $25,000 to $45,000 or more.

Digest the number, swallow hard and let’s talk resources.

Research all options to raise cash. Adoptive parents must get creative. Here’s a starter list, and certainly there are others. Ultimately each option will vary given the circumstances of your family: adoption grants, adoption loans, an employer adoption credit, friends/family, crowdfunding like a GoFundMe page, mortgage refinance, 0% credit cards, and the Adoption Tax Credit. Say what? Yes, the federal government has a “tax credit for that.”

It’s April, and that means tax time. Let’s dive in and make sure you have the basics. You can then evaluate the other options.

  • For adoptions finalized in 2018, the Adoption Tax Credit is $13,810. For 2019 finalizations, it increases to $14,080. Changes to the law allow the credit to adjust each year based on a cost-of-living calculation during the finalization year.
  • Unlike a tax deduction, which lowers gross income, a tax credit is a dollar-for-dollar reduction in tax liability. In other words, it is a non-refundable credit which you receive (or benefit from) a refund of federal income taxes—only up to the amount of taxes you would have paid. It will not, however, cover self-employment tax, or early pension distribution penalty.
  • Depending on the annual tax liability, you may receive back 100% of the taxes withheld from your paycheck. If the credit exceeds your annual tax liability, you can carry forward the credit balance for up to 5 years.

1. How Do I Make Sure I Get Every Penny?

The secret to being reimbursed the max you are eligible is record keeping. While some adoptive parents will be fortunate enough to have all expenses occur during the calendar year of finalization, most will have carry-over. When this happens, you may run the risk of forgetting pre-finalization expenses, like the initial home study, from a year or more prior. Get a system up front. Log in a Google doc, excel spreadsheet, or an app on your phone. How are you most likely to keep up with it?

You may be eligible to file an amended return to claim the Adoption Tax Credit for previous years.

2. When Can I Claim the Adoption Tax Credit?

The short answer is right now. Any adoption expenses incurred in 2017 and 2018 for adoptions that finalized in 2018 should be claimed on the 2018 tax return. In addition, adopting parents do not have to wait for finalization to access the credit when seeking to adopt a U.S.-born child. Qualifying adoption expenses can be claimed on tax returns the year after the expense is incurred: i.e. 2017 expenses are claimed in 2018 and 2018 expenses are claimed in 2019. This means that even if you do not complete the adoption, you can be reimbursed for qualifying expenses along the way.

3. Are International Adoptions Treated the Same?

No, the tax credit can only be claimed after the adoption is finalized for those taking place outside the U.S.

4.  What if I Was Previously Eligible for the Adoption Tax Credit and Did Not Claim it in the Year of Eligibility?

You may be eligible to file an amended return to claim the Adoption Tax Credit for previous years. Consult a qualified tax attorney, CPA or licensed tax professional to determine specific eligibility.

5. What Expenses Qualify?

According to the IRS, any adoption expenses must be reasonable, necessary and directly related to the adoption. Reasonable right. How about the chardonnay expense from Trader Joe’s? Can’t deduct the wine, but you can deduct pre-placement expenses, adoption and attorney fees, court costs and travel. Remember, an expense may be a qualified adoption expense even if the expense is paid before a child has been identified. For example, prospective adoptive parents who pay for a home study at the outset of an adoption effort may treat the fees as a qualified adoption expense.

6. Does Everyone Get the Full Amount?

Most adopting parents will qualify for the full amount. However, there are income restrictions. I did not have this problem, unfortunately. But for those of you that might, if your adjusted gross income exceeds $207,140 in 2018 ($211,160 in 2019) you will receive a reduced tax credit. If your adjusted gross income exceeds $247,140 in 2018 ($251,160 in 2019), you will not be eligible.

Employer-provided adoption benefits can also affect the tax credit available. The amount paid by the employer needs to be deducted from the total adoption cost first. The remaining balance will be the maximum tax credit that can be claimed.

7. What About Adopting My Spouse’s or Domestic Partner’s Child?

The credit does not apply to expenses incurred to adopt a child of the taxpayer’s spouse. Unmarried domestic partners who live in states that allow co-parents or same-sex second parents to adopt their partner’s child may qualify for the credit. Again, seek the experience of a qualified tax accountant.

I wish I would have sought out more help and information. I waited until the finalization year before claiming any of the credit back in 2012. Reach out and get the facts. Every penny helps get you closer to your goal of building a family without significant debt. Consult a qualified tax attorney, CPA or licensed tax professional.

To learn more about the Adoption Tax Credit visit the IRS website at https://www.irs.gov/taxtopics/tc607.

To file for the Adoption Tax Credit complete Form 8839.pdf, Qualified Adoption Expenses, using Form 8839 Instructions.

The information contained in this article is for general knowledge purposes only. Individuals interested in claiming any tax credit should consult a qualified tax professional to determine specific eligibility and amounts.


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If you’re a new parent, foster parent, adopting parent, expecting parent or thinking of growing your family join our annual Bloom Event on Saturday, April 27th at WakeMed North Women’s Hospital. Learn more about this fun Mom’s Morning Out filled with pampering, swag, learning, shopping and so much more!

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