An Adoption Credit of up to $12,170 is allowed for the qualifying costs of adopting a child under the age of 18, or a person who is physically or mentally incapable of self care. There is a $12,170 adoption credit limit for each effort to adopt a child and the Adoption Credit is allowed only if the adoption is finalized. If the adoption isn’t final, no credit can be taken. The separate $12,170 limit applies for each child adopted.
The Adoption Credit for a tax year cannot be more than the taxpayer’s tax liability for that tax year less:
- any tax credit for child and dependent care expenses
- any tax credit for the elderly and disabled
- tentative alternative minimum tax
Any unused Adoption Credit may be carried forward to future tax returns for up to five years.
A special needs adoption for Adoption Credit purposes is defined as the adoption of a child who:
- according to the state could not or should not be returned to the home of the birth parents
- due to a specific factor or condition (such as ethnic background, age, membership in a minority group, or sibling group, medical condition, or physical, mental or emotional handicap) could not be expected to be adopted unless an adoption credit is provided
- is a resident or citizen of the United States
Expenses that qualify for the Adoption Credit are:
- reasonable and necessary adoption fees
- court costs
- attorney’s fees
- other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child
If the taxpayer paid qualifying expenses but the adoption was not final at the end of the tax year he may not claim the Adoption Credit. Qualified expenses paid in one tax year are not taken into account for purposes of the Adoption Credit until the next tax year, unless the expenses qualifying for the Adoption Credit are incurred in the tax year the adoption becomes final.
The Adoption Credit is not allowed for expenses:
- incurred in violation of state or federal law
- incurred in carrying out any surrogate parenting arrangement
- incurred in connection with the adoption of a child of the taxpayer’s spouse
- that are paid or reimbursed by a federal, state, or local grant
- that are paid or reimbursed under an employer’s adoption assistance program