Can I deduct an Adoption Credit on my tax return?

An adoption credit of up to $10,960 is allowed on your tax return 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 $10,960 adoption credit limit on your tax return in the case of foreign adoptions in all cases and the adoption credit is allowed on your tax return only if the adoption is finalized.

Your Adoption Credit for a tax year cannot be more than your tax liability on your tax return for that tax year less:

	any tax credit on your tax return for child and dependent care expenses;
	any tax credit on your tax return for the elderly and disabled; and
	your tentative alternative minimum tax on your tax return.

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; and
	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; and
	other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.

If you paid qualifying expenses in 2006 but the adoption was not final at the end of the tax year you may not claim the adoption credit on your 2006 tax return. 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; or
	that are paid or reimbursed under an employer's adoption assistance program.

In addition to an adoption credit, the tax law provides an adoption assistance exclusion from an employee's taxable income for up to $10,960 of employer provided adoption reimbursement for specified adoption expenses incurred and paid pursuant to a written adoption assistance plan. The $10,960 limit is applied against each child adopted, rather than on an annual basis.

Taxpayers adopting children are eligible for both the adoption credit and the adoption assistance exclusion of adoption expenses paid for through an employer's adoption assistance plan. However, the same adoption expense cannot qualify for both the adoption credit and the adoption assistance exclusion.

For taxpayers whose modified adjusted gross income (MAGI) is between $164.410 and $204,410, both the adoption credit and the adoption assistance exclusion are subject to a ratable phase out. No adoption credit or adoption assistance exclusion is allowed if MAGI is $204,410 or more.

To qualify for either the adoption credit or adoption assistance exclusion, the taxpayer must provide the IRS with the name, age and TIN of each adopted child.

Related tax information about the Adoption Credit

Tax Directory Topics:
Tax Credits

IRS publications about the Adoption Credit:
For further information about the Adoption Credit see IRS Publication 968,

Tax Benefits for Adoption. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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