Are Adoption Tax Benefits a Real Thing?

Tax benefits are a real thing in adoption but may not work the way you understand them. Let’s explore what they really are and how to benefit from them.

The IRS offers a tax credit in the amount of $13,570 for 2017; however, this amount is subject to change year to year, so make sure you check with your CPA. This tax credit is non-refundable and reduces your federal tax liability dollar for dollar. Here’s an example. Let’s say you had $13,570 in qualified adoption expenses and you paid in $8,000 in Federal taxes for 2017. You would receive all $8,000 back as a federal tax refund and still have $5,570 tax credit remaining for the following year. This credit can carry over for six years or until you have reached the total credit of  $13,570. This credit does fade out if you reach a gross salary of $203,540 and goes away completely for a gross salary over $243,540. Again, check with your CPA for confirmation.

In order to qualify for the adoption tax credit you must have qualifying expenses, which include adoption fees, court costs, attorneys fees, and traveling expenses such as meals and lodging while away from home. This tax credit can be claimed for international adoption, domestic (agency and private) adoptions, and public foster care adoptions. These expenses can be claimed for a successful adoption or an attempt at adoption that did not result in final adoption. 

There are limited tax benefits from each individual state as well. You should check with your CPA to find out what your state has to offer for adoption tax benefits.

We were able to claim almost all of our son’s adoption expenses when we adopted him. He was born in 2014, we officially adopted him in 2015, and we were able to claim the expenses in 2016, since the expenses have to be incurred the year before the adoption is finalized. It took us just over 6 months to finalize his adoption and since he was born in August, that carried over into 2015, which is why we had to wait until 2016 to claim the tax exemptions. We also had a failed adoption for which we incurred expenses in 2016/2017, which we were able to claim in 2018. We were only able to claim the failed adoption expenses for the IRS, not the state in which we reside. Again, I suggest meeting with and having a CPA prepare your taxes when it comes to claiming the adoption credits.