You may be eligible for the adoption credit if you’ve paid qualified adoption expenses to adopt an eligible child. An eligible child is a dependent who is under 18, or physically or mentally unable to care for themselves.
Go to this section in Credit Karma Tax: Your Dependents
Qualified adoption expenses are essential payments needed to adopt an eligible child within reason. These expenses may include the following:
- Adoption fees,
- Legal costs,
- Traveling expenses (including meals and lodging), and
- Other expenses directly related to the legal adoption of the eligible child
Depending on the type of adoption, the guidelines to qualify for this credit may vary.
Go to this section in Credit Karma Tax: Adoption Credit
Domestic Adoption vs. Foreign Adoption
A domestic adoption is the adoption of an eligible child who’s already a citizen, or a resident of the U.S. or its possessions before the adoption effort begins. Qualified adoption expenses paid before the year the adoption becomes final, are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized).
A foreign adoption is the adoption of an eligible child who isn’t a citizen, nor a resident of the U.S. or its possessions before the adoption effort begins. If you’re adopting a foreign child, the adoption credit may only be taken for the year the adoption becomes final.
Once an adoption has been finalized and subjected to the dollar limitation, qualified adoption expenses paid during or after the year of finality are allowable as a credit for the year of payment, whether the adoption is domestic or foreign.
If you’re unsure if you’ve met all the requirements, you can use this interactive interview offered by the IRS.
Adoption of Special Needs Children
If you adopt a U.S. child that a state has determined to have special needs, you're generally eligible for the maximum amount of credit in the year of finality. A child must meet all of the following criteria to qualify as a special needs child for the purposes of the federal adoption tax credit:
- The child must be a U.S. citizen or resident or its possessions when the adoption process began.
- The state (including Washington DC) must determine that the child can’t or shouldn’t be returned to their biological parents.
- The state must also determine that the child probably won’t adopted without additional assistance offered to the adopting family.
For the adoption of special needs children, if your employer has a written qualified adoption assistance program, you may be eligible for the exclusion, even if you or your employer didn't pay any qualified adoption expenses.
Carryforwards and other info about the adoption credit
The adoption credit is nonrefundable, but any amount that you can’t claim in one year may be carried forward for up to 5 years.
The maximum amount of the credit for 2018 is $13,810 per child. It is phased out based on your modified adjusted gross income (MAGI). You can find out more about these limitations by checking the IRS website.
If you’re married, expenses paid for adopting your spouse’s child won’t count towards the adoption credit. But if you have a registered domestic partner and have eligible expenses related to adopting your partner’s child, you may be able to claim the adoption credit.