Don’t Leave Money on the Table – Adoption Tax Credit Explained

The Internal Revenue Service has issued guidance on the revived adoption tax credit.

Congress declared the tax credit permanent in 2013 and, in 2018, raised the maximum adoption credit to $13,810 for qualified expenses, including adoption fees, court costs, attorney’s fees, and travel expenses. The credit amount begins to phase out for taxpayers with an adjusted gross income over $207,140, and is unavailable to taxpayers with an adjusted gross income of $247,140 or more.

The adoption tax credit is non-refundable, meaning it cannot be claimed by families with no tax liability. However, adoptive families can use the credit to offset actual tax liability for that given year, and any “excess” credit that is unused can be carried forward for up to five years. When the tax credit can be claimed depends on whether the adoption was domestic or international, and if it has already been finalized.

Eligible taxpayers must fill out Form 8839, Qualified Adoption Expenses. Form 8839 need not be attached to a final tax return, though the IRS recommends that a copy of the adoption documentation be kept on file in case of an audit.

Related items:

• Notice 2010-66
• Revenue Procedure 2010-31
• Revenue Procedure 2010-35
• Revenue Procedure 2018-18

Please consult with your tax preparer.