Tax Topic #607 |
2008 Tax Year |
Topic 607 - Adoption Credit
You may be able to take a tax credit for qualifying expenses paid to adopt
an eligible child (including a child with special needs). The adoption credit
is an amount subtracted from your tax liability. For expenses paid prior to
the year the adoption becomes final, the credit generally is allowed for the
year following the year of payment. A taxpayer who paid qualifying expenses
in the current year for an adoption which became final in the current year,
may be eligible to claim the credit for the expenses on the current year return,
in addition to credit for expenses paid in a prior year. The adoption credit
is not available for any reimbursed expense. In addition to the credit, certain
amounts paid by your employer for qualifying adoption expenses may be excludable
from your gross income.
For both the credit or the exclusion, qualifying expenses include reasonable
and necessary adoption fees, court costs, attorney fees, traveling expenses
(including amounts spent for meals and lodging while away from home), and
other expenses directly related to and for which the principal purpose is
the legal adoption of an eligible child. An eligible child must be under 18
years old, or be physically or mentally incapable of caring for himself or
herself. The adoption credit or exclusion cannot be taken for a child who
is not a United States citizen or resident unless the adoption becomes final.
A taxpayer also may be eligible to take an increased credit or exclusion for
expenses related to the adoption of a child with special needs if the child
otherwise meets the definition of qualifying child, is a United States citizen
or resident and a state determines that the child cannot or should not be
returned to his or her parent's home and probably will not be adopted unless
assistance is provided. The credit and exclusion for qualifying adoption expenses
are each subject to a dollar limit and an income limit.
Under the dollar limit the amount of your adoption credit or exclusion
is limited to the dollar limit for that year for each effort to adopt an eligible
child. If you can take both a credit and an exclusion, this dollar amount
applies separately to each. For example, if we assume the dollar limit for
the year is $10,000 and you paid $9,000 in qualifying adoption expenses for
a final adoption, while your employer paid $4,000 of additional qualifying
adoption expenses, you may be able to claim a credit of up to $9,000 and also
exclude up to $4,000.
The dollar limit for a particular year must be reduced by the amount of
qualifying expenses taken into account in previous years for the same adoption
effort.
The income limit on the adoption credit or exclusion is based on your modified
adjusted gross income (modified AGI). If your modified AGI is below the beginning
phase out amount for the year, the income limit will not affect your credit
or exclusion. If your modified AGI is more than the beginning phase out amount
for the year, your credit or exclusion will be reduced. If your modified AGI
is above the maximum phase out amount for the year, your credit or exclusion
will be eliminated.
Generally, if you are married, you must file a joint return to take the
adoption credit or exclusion. If your filing status is married filing separately,
you can take the credit or exclusion only if you meet special requirements.
To take the credit or exclusion, complete Form 8839 (PDF), Qualified Adoption Expenses, and attach the form to
your Form 1040 (PDF) or Form 1040A (PDF).
Page Last Reviewed or Updated: December 22, 2008
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