Tax Information Related to Adoption of Children

If you adopted or tried to adopt a child in 2014, may qualify for an adoption tax credit. If your employer sponsored costs of adoption, you may be able to exclude some of the income in taxes. Here are ten things you should know about the tax benefits of adoption.

  1. Adoption Credit / Exclusion. The credit is not refundable. This means that credit can reduce your tax to zero. If the credit is greater than your tax, you can not receive an additional amount as a refund.If your employer helped pay for the adoption by a qualified adoption assistance program in writing, you may qualify to exclude that amount of taxes.
  1. Maximum Benefit. The maximum adoption tax credit and exclusion for 2015 is $ 13,190 per child.
  2. Transfer the credit. If your credit is greater than your tax, you can transfer forward unused credit. This means that if you have a credit balance in 2014, which can be used to reduce your taxes in 2015. You can do this for up to five years or until you use the credit in full, whichever comes first.
  3. Eligible child. An eligible child is under 18 years. This rule does not apply to persons who are physically or mentally incapable of caring for themselves.
  4. Qualified expenses. Adoption Expenses must be directly related to the adoption of the child and be reasonable and necessary. The types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.
  5. Domestic or Foreign Adoptions. In most cases, you can claim the credit if the adoption is domestic or foreign. However, the rules include spending time which are different between the two types of adoption.
  6. A Child with Special Needs. If you adopted an eligible American child with disabilities and the adoption was finalized, a special rule applies. You could take the tax credit even if you have not paid for qualified adoption expenses.
  7. No Double Benefit. Depending on the price of adoption, you could claim both the tax credit and exclusion. However, you can not claim both the credit and exclusion for the same expenses. This rule prevents you claim both tax benefits for the same expense.
  8. Income Limits. The credit and exclusion are subject to income limits. Limits may reduce or eliminate the amount you can claim depending on the amount of your income
  9. IRS Free File. You can use IRS Free File to prepare and e-file your federal taxes for free. File theForm 8839 , Qualified Adoption Expenses, with your Form 1040. Free File is available only in IRS.gov/freefile .