Adopting a Child? Make Sure You Take Advantage of the Adoption Credit

There are approximately 120,000 children adopted each year in the United States. Did you know that the IRS makes a special credit available for parents who take on the added expense of adopting a child?

Adoption can be a noble undertaking. But it's not without its costs. Adoption through the foster care system can be inexpensive, but specialized and international adoption can easily be in the $30 to $40 thousand range.

For this reason, the IRS makes an adoption credit available. Form 8839 is used to report your qualified adoption expenses. Starting in 2010, the adoption credit is now a refundable credit, meaning that it can generate a refund even if you owe no tax.

Depending on the cost of the adoption, the maximum amount you currently may be able to exclude from your income is $13,170. If you owe no tax, you also may be able to claim a credit equal to this same amount of $13,170.

What types of expenses are excluded from taxation, and what are the eligibility requirements for this credit?

According to the IRS, an eligible child for the purpose of this credit would be any child under the age of 18 when the adoption is finalized. If the child turned 18 during the year, then you would only count the expenses incurred while he or she was under age 18.

If you are adopting an adult, then any physically or mentally disabled person who is unable to take care of himself or herself would also qualify.

Qualified adoption expenses are all those that are considered reasonable and necessary and that directly relate to the endeavor to legally adopt an eligible child or adult.

The following are considered qualified adoption expenses. This list is not all-inclusive.

• Adoption fees, filing fees and any other fees the agency charges
• Costs to perform background checks and to have a home study done
• Attorney fees for document preparation and representation in court
• Court costs
• Travel expenses (including meals and lodging) incurred throughout the process
• Re-adoption expenses relating to the adoption of a foreign child

If you are reimbursed by the state, your employer, the federal government or any other agency or separate program, these expenses are not also qualified as deductible on Form 8839. You also cannot take a deduction for an adoption of your spouse's child.

Because of the secure and personal nature of an adoption, the IRS has strict document guidelines that must be followed when claiming this credit. Don't slow down your refund by failing to include all required documentation with your return.

Because of these documentation requirements, taxpayers claiming the adoption credit must file a paper return in lieu of filing electronically. Bear in mind that a paper return takes six to eight weeks to process for a refund. If your documentation is incomplete, it will take longer.

Along with the completed Form 8839, the following documents are required to be sent in to the IRS, depending on if you are adopting domestically or internationally.

For domestic adoptions, attach at least one of the following:

• An Adoption Taxpayer Identification Number (ATIN)
• The results of a home study completed by a qualified agency
• A agency placement agreement
• A document signed by the hospital which authorizes the release of a newborn for adoption
• A court document, with the official seal, ordering or approving of the placement

Foreign adoptions require additional documentation, such as a Hague Adoption Certificate and or a Visa.

On the IRS web page, it makes clear that the IRS is committed to processing adoption credit claims quickly, but that it also is tasked with safeguarding against improper claims. If your return is selected for review, remember that it's necessary for the IRS to ensure all legal criteria is met before the credit can be paid out.

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