When my wife and I adopted our children (in the 1990s), there weren’t any adoption tax credits for us to take advantage of. Today, however, if you’ve adopted a child, you may be able to claim an income exclusion of $13,170 from your income and a tax credit for the same amount, depending on the expenses you incurred as a result of the adoption. (You cannot, however, claim an exclusion and a credit for the same expenses, as we’ll see below.) To claim the exemption or credit, you’ll need to fill out Form 8839.
First, you should know that Form 8839 comes with certain documentation requirements. You’ll need to include some paperwork along with the form, which means that you cannot file it electronically. You must file paper returns. Along with the form, you’ll need to include the following documentation that varies with the type of adoption.
For domestic adoptions that have not been finalized, include one or more of these:
- A taxpayer identification number obtained by the taxpayer for the child, included on you return instead of attaching a document
- A home study conducted by an authorized placement agency
- A placement agreement with an authorized agency
- A hospital document authorizing release of a newborn for adoption
- A court document with official seal approving placement of the child for adoption
Your last option for domestic adoptions is an affidavit or notarized statement by a government official or adoption attorney. Their statement must say that they have placed or are placing the child with you for legal adoption, or that they are facilitating your adoption process in a legal capacity. If they are facilitating your adoption process, the letter must includes steps being taken to do so. (Luckily, if you need to get a letter from you attorney, they should be familiar with the documentation requirements for Form 8839.)
For finalized adoptions, foreign or domestic, you can include any of the following:
- The adoption order or decree, with official seal
- If your adoption as governed by the Hague, you can include the Hague adoption certificate, the IH-3 visa, or a foreign adoption decree translated into English
- For foreign adoptions not governed by the Hague convention, include a foreign adoption decree translated into English, or an IR-2 or IR-3 visa.
Next, let’s go over what sort of expenses Form 8839 is concerned with. Form 8839 refers to the following as “qualified expenses”:
- Adoption fees
- Attorney fees
- Court costs
- Travel expenses
- Re-adoption expenses related to the adoption of a foreign child
The form specifically excludes the following:
- Expenses for which you received funds from any state, local, or federal program
- Any expenses that violate state or federal law
- Expenses for carrying out a surrogate parenting arrangement
- Expenses for adopting a spouse’s child
- Anything paid or reimbursed by your employer or any person or organization
- Any expenses that are an allowed exemption under any other provision of federal law
Now, here’s where everything can get tricky quickly. When you take the credit or exclusion depends on the year of the payment and when the adoption was finalized. For example, you should take the credit for any payment in years before the adoption is finalized the year after the payment. For payments made during and after the year the adoption was finalized, the credit is taken for the year of the payment. To make things more complicated, Form 8839 lets you carry over expenses from previous years, which will mean carrying data from last year’s Form 8839.
If your adoption expenses are relatively straightforward, all you need to fill out Form 8839 is identification information, your adoption expenses, and any amounts paid as adoption benefits by your employer. You’ll also want a copy of your tax return handy in order to figure out your modified adjusted gross income. Form 8839 will then lead you through the process of figuring out your credit and exclusion.
On the other hand, if you have adoption expenses from multiple years, you’re carrying over expenses from previous years, or you’re just a little daunted by the process, you may want to consider a tax preparation professional. What seems like a cryptic process for you is a day at the office for a tax professional. They are trained to understand the nuances of these forms, credits and deductions, and they can take a big task off of your plate.
As always, consult with a tax professional before making any important tax decisions!