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Adoption Expenses

Two tax benefits are available to adoptive parents: the adoption credit and the adoption benefits exclusion.

Adoption Credit 

If you paid adoption expenses in 2013, you might qualify for a credit of up to $12,970 for each child you adopted.  

The credit amount depends on your income. The credit is reduced if your adjusted gross income (AGI) is more than $194,580. You can’t get the credit if you earn more than $234,580.

Adoption Benefits Exclusion  

If your employer offers an adoption assistance program, you can exclude up to $12,970 from your income in 2013. The income limits listed above apply to this tax benefit, too.  

Your employer will report these benefits on your W-2, box 12 and mark it with the code “T.” You can claim both the credit and the exclusion for expenses related to adopting a child. However, you can't claim both for the same expenses.

You might receive both benefits if both of these are true:

  • You're adopting a child with special needs.
  • Your employer has an adoption assistance program.

In adoption cases, the state decides if the child is a special-needs child.

If you're married filing separately, you can't claim either of these benefits unless you meet all these requirements:

  • You lived apart from your spouse during the last six months of 2013.
  • Your adopted child lived in your home for more than half of 2013.
  • You provided more than half the cost of maintaining your home.

Qualifying Adoption Expenses

Qualifying expenses include:

  • Adoption fees
  • Court costs
  • Attorneys' fees
  • Travel expenses
  • Other adoption costs

For your expenses to qualify for the credit or exclusion, both of these must apply:

  • The adopted child must be under age 18 or disabled.
  • You paid the expenses in 2013.

Year You Claim the Credit

If the adopted child is a U.S. citizen or resident, the year you claim the credit will depend. You must consider the year you pay the expenses and the finality of the adoption. Follow these rules to claim the credit:

  • If you pay the expenses in a year before the adoption becomes final, you can claim the credit in the year after the year of payment. So, you can claim expenses paid in 2011 for the credit on your 2012 return if the adoption isn’t yet final.
  • If you pay the expenses in the year the adoption becomes final, you can claim the credit for that year.  
  • If you pay the expenses in a year after the adoption becomes final, you can claim the credit in the year you pay the expenses.

If the adopted child has special needs, you can claim the full amount of the credit and the exclusion. You can do this regardless of the actual amount of expenses incurred.

If the adopted child is from a foreign country, you might be able to claim the credit and / or exclusion. You can do so only if the adoption became final in 2013.

Claiming the Credit

To report your adoption expenses and claim the adoption credit or exclusion:

  • Use Form 8839: Qualified Adoption Expenses.
  • Attach the appropriate records to the form.

For adoptions in 2011 and 2010, you had to submit records with Form 8839. You don’t have to do this for adoptions in and after 2012. However, it’s still a good idea to have documentation that shows:

  • The amount of expenses you incurred
  • When the adoption became final

The documentation will help you in case you need to refer to your records at a later date.

Finality of Foreign Adoptions

The IRS has safe harbors for the finality of foreign adoptions covered by the Hague Convention. They’re for children adopted on or after the Hague Convention took effect. They apply to children who both:

  • Were habitually residents in a convention country
  • Moved, or will move, to the United States

Prospective adoptive parents must also have filed Form I-800A: Application for Determination of Suitability to Adopt a Child. The application must be both of these:

  • From a Hague Convention country
  • Filed with the Department of State on or after April 1, 2008

If you meet all the requirements, you can rely on the safe harbor when you claim the finality of the adoption.  

The IRS won’t challenge the finality of foreign adoptions finalized in a Hague Convention country other than the United States in the tax year that either:

  • The Hague Convention country enters a final decree of adoption
  • The secretary of state issues a Hague Adoption Certificate (IHAC)

When a foreign adoption is finalized in the United States, you shouldn’t face an IRS challenge. This is true if the child came to the country for adoption under a Hague Custody Certificate (IHCC). However, this only applies for the year that a state court enters a final decree of adoption.  

To learn more, see Form 8839: Qualified Adoption Expenses at www.irs.gov.  

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