9 Facts About the Adoption Credit

Date posted: February 15, 2018

Adoptive parents around the country may qualify for a tax credit. Parents who either adopted a child or tried to adopt a child may claim the adoption credit. Here are nine things you should know about this credit.

1. Credit

The credit is nonrefundable. This means the credit may only reduce a taxpayer’s tax liability to zero. If the credit is more than the tax owed, the taxpayer can’t receive an additional amount as a refund.

2. Credit carryover

Taxpayers can carry any unused credit forward to the next year. This happens when the credit is more than the tax owed. In other words, taxpayers who have an unused credit in tax year 2017 can use it to reduce their taxes for 2018. Taxpayers can carry any remaining credits for up to five years, or until they fully use the credit, whichever comes first.

3. Exclusion

If the taxpayer’s employer helped pay for the adoption through a qualified adoption assistance program, the taxpayer may qualify to exclude that amount from tax.

4. Eligibility

An eligible child is an individual under age 18. It can also be an individual of any age who is physically or mentally unable to care for themselves.

5. Special needs child

Special rules apply to taxpayers who adopted an eligible U.S. child with special needs. The taxpayers may be able to take the exclusion even if they didn’t pay any qualified adoption expenses.

6. Qualified expenses

Adoption expenses must be directly related to the adoption of the child. The expenses must also be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.

7. Domestic or foreign adoptions

In most cases, taxpayers can claim the credit whether the adoption is domestic or foreign. However, the rules for which year a taxpayer can claim qualified expenses differ between these two types of adoption.

8. No double benefit

Depending on the adoption’s cost, taxpayers may be able to claim both the tax credit and the exclusion. However, they can’t claim both a credit and exclusion for the same expenses.

9. Income limits

The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount a taxpayer can claim depending on the amount of their income.


(This is a reprint of Internal Revenue Service / IRS Tax Tip 2018-05)

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This news item was recommended by: John Dyer

John L. Dyer, CPA is a partner of Peter Shannon & Co., a CPA firm located in the Chicagoland area. His credentials include Bachelor of Science in Accountancy at the University of Illinois Champaign and a Master’s Degree of Science in Taxation at DePaul University. His expertise includes taxation for high income individuals, estate, retirement and education planning, business fields of construction, broker/dealers, manufacturing, medical, trucking, and retail.

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