According to a report by the Child Welfare Information Gateway, a division of the U.S. Department of Health and Human Services, approximately 136,000 children were adopted annually in the United States for 2007 and 2008, the last years for which data is available. This represents the number of successful adoptions. Not all efforts to adopt have a happy ending. But for the more than 100,000 kids who are fortunate enough to go home with new parents, it's a new beginning.

But happiness comes at a price: adoption is not cheap. The average cost of a private adoption is $30,000 with foreign adoptions topping nearly $50,000.

Complete 10-second survey to read full article!
According to a report by the Child Welfare Information Gateway, a division of the U.S. Department of Health and Human Services, approximately 136,000 children were adopted annually in the United States for 2007 and 2008, the last years for which data is available. This represents the number of successful adoptions. Not all efforts to adopt have a happy ending. But for the more than 100,000 kids who are fortunate enough to go home with new parents, it's a new beginning.

But happiness comes at a price: adoption is not cheap. The average cost of a private adoption is $30,000 with foreign adoptions topping nearly $50,000.

Fortunately, there's a credit to help offset qualified adoption expenses. Qualified adoption expenses are defined by the IRS as "reasonable and necessary adoption fees." That means expenses like court costs, attorney fees, traveling expenses and other expenses directly related to the legal adoption of an eligible child. Keep excellent receipts (you'll need them) including entry visas for foreign adoptions, final decree, certificate or order of adoption, home study by an authorized placement agency, child placement agreements or court orders, and determination of any special needs status.

Qualified adoption expenses do not include expenses for adopting your spouse’s child, for a surrogate parenting arrangement, that violate state or federal law (yes, this includes adopting your girlfriend or significant other for tax, inheritance or other reasons) or those paid using funds that weren't out of your pocket (those received from a federal, state, or local program or paid or reimbursed by your employer or any other organization).

For purposes of the credit, an eligible child is a child under the age of 18 or an individual who is physically or mentally incapable of caring for him or herself.

Under the Affordable Care Act (the new health care law), the adoption credit was made refundable for 2010 and 2011. That means that you can claim the full amount of the credit for which you're entitled even if you have no tax liability. That changes a bit for 2012: the credit is not refundable. It remains bumped up, however: you may claim an adoption credit of up to $12,650 (for tax year 2012) per eligible child. The credit is slated to decrease to $5,000 (or $6,000 for a special needs child) in 2013.

To claim the credit, attach federal form 8839 (downloads as a pdf) and the required adoption-related documentation to your federal tax return. And all that clamor from the IRS about how they really, really want you to file electronically? Not so with the adoption credit: you must file a paper tax return because you need to attach the supporting documents.

Adopting in the United States

If you pay qualifying expenses to adopt a U.S. child and you pay qualifying expenses in a year before the year the adoption is final, you must claim the credit in the year after the year that you make payment (note that this is different for foreign adoptions—check the next section for details). If you pay qualifying expenses in the year that the adoption is final, you claim the credit that same year. And if you make payment in any year after the year the adoption is final, you claim the credit in the year that you make the payment.

If your employer provides adoption assistance, you exclude that assistance from your income in the year of the payment.

Be sure to check the section on failed domestic adoptions for more information.

Adopting from abroad

If you pay qualifying expenses to adopt a foreign child and you pay qualifying expenses in a year before the year the adoption is final or in the year the adoption is final, you must claim the credit in the year the adoption is final. If you pay qualifying expenses in any year after the year the adoption is final, you claim the credit in the year that you make the payment.

If your employer provides adoption assistance, the same rules apply for determining when to exclude that assistance from your income (note that this is different from the rules for employer-provided assistance for domestic adoptions).

Be sure to check the next section for information related to failed foreign adoptions.

When the adoption falls through

Sadly, everything doesn’t always go as planned. Even if you don’t come home with a child, efforts to adopt still result in expenses. What then?



Failed Adoption Expenses

Taxpayer asks:

Hi Kelly, Can failed adoption expenses still be deducted even tho the adoption did not go thru?? Thanks.

Taxgirl says:

There’s a “yes” and a “no” depending on your circumstances (see comments below). That said, if you paid qualifying expenses for an adoption in the previous tax year for an adoption which became final in the tax current year, you may be able to claim all of your qualifying expenses in one tax year. In that case, some of the expenses that were related to a failed adoption (for example, certain legal or agency fees) may qualify as “directly related” to the final adoption of an eligible child. If you’re not sure whether any such expenses from a prior attempt would qualify, ask your tax advisor. The adoption credit for 2012 is $12,650 per child and it is non-refundable. The amount is slated to be reduced to $5,000 in 2013.



And some good information (and thoughts) from the comments:
Three things to clarify your answer a bit:


1. If you have a failed domestic adoption, you can claim the credit for the expenses in the following year. Section 23(a)(2)(A) only says that if you incur qualified expenses in a year before the adoption becomes final, you can take the credit for those expenses in the following year. There's no requirement that the adoption ever be finalized.


2. You can never claim an adoption credit for expenses related to a failed foreign adoption. Section 23(e)(1) allows a credit for expenses related to the adoption of a foreign child only if the adoption becomes final, and there's a Revenue Procedure (2005-31) that specifically defines when a foreign adoption is considered to be "final."


3. The IRS, in Form 8839 and its instructions, interprets the statute to say that the credit limitation is per successful attempt. That is, if in 2008 you incur $3,000 in an unsuccessful attempt to adopt a domestic child, and then in 2009 you incur $15,000 in a successful attempt to adopt a different child, the IRS says you're limited to $12,150. I don't see that in the statute, nor do several attorneys I know who lobbied for the adoption credit. The statute just says the limit is per child. If you're in this position, you definitely need to discuss it with your tax advisor.
Can you tell I’ve been through the adoption process? This is a bit of a pet issue for me.
Price: $2.99 Add to Cart
  • Lifetime guarantee
  • 100% refund
  • Free updates