Raising kids is expensive. But there is tax help available. Parents can claim a tax credit that covers some adoption expenses.
The current tax credit provides up to $10,630 for qualifying expenses paid to adopt an eligible child (including a child with special needs). The adoption credit is an amount subtracted from your tax liability. Although the credit generally is allowed for the year following the year in which the expenses are paid, a taxpayer who paid qualifying expenses in 2004 for an adoption which became final in 2004, may be eligible to claim the credit on the 2004 return. The adoption credit is not available for any reimbursed expense. In addition to the credit, up to $10,390 paid or reimbursed through the year 2004 by your employer for qualifying adoption expenses may be excludable from your gross income.
Qualifying expenses include 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 for which the principal purpose is
the legal adoption of an eligible child. An eligible child must be under 18
years old, or be physically or mentally incapable of caring for himself or
herself. The adoption credit or exclusion cannot be taken for a child who
is not a United States citizen or resident unless the adoption becomes final.
An eligible child is a child with special needs if he or she is a United States
citizen or resident and a state determines that the child cannot or should
not be returned to his or her parent's home and probably will not be adopted
unless assistance is provided.
The credit and exclusion for qualifying adoption expenses are each subject
to a dollar limit and an income limit.
Under the dollar limit the amount of your adoption credit or exclusion
is limited to $10,630 for each effort to adopt an eligible child. If you can
take both a credit and an exclusion, this dollar amount applies separately
to each. For example, if you paid $9,000 in qualifying adoption expenses for
a final adoption, and your employer paid $4,000 of additional qualifying adoption
expenses, you may be able to claim a credit of up to $9,000 and also exclude
up to $4,000.
The $10,630 amount is the maximum amount of qualifying expenses taken into
account over all taxable years. Therefore, it must be reduced by the amount
of qualifying expenses taken into account in previous years for the same adoption
effort, including an unsuccessful effort to adopt a different child.
To take the credit or exclusion, complete Form 8839 (PDF), Qualified Adoption Expenses. You will attach Form
8839 to Form 1040 (PDF) or Form 1040A (PDF) and report the credit on line 53 of Form 1040 or line
34 of Form 1040A. Additional information on the adoption credit and
exclusion can be found in Publication 968, Tax Benefits for Adoption.
Employers should order Publication 968 to obtain information on setting
up an adoption assistance program and information on how to report this benefit.
Email or call 1-800-FOR-ADOPT in confidence!
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