First and foremost, MLJ Adoptions International is not a qualified tax preparer and cannot provide you with advice for filing your taxes. We suggest you contact a tax professional.
However, we can remind you that there is a non-refundable tax credit for qualified adoption expenses paid to adopt an eligible child. The IRS tax code provides an adoption tax credit of up to $13,810 in 2018 per child for qualified adoption expenses for each child adopted, whether through public foster care programs, international adoption, adopted a relative’s child, or private domestic adoption. Step-parent adoptions are NOT eligible, however. If you were adopting from the US, you can also claim credit for the expenses of a failed or non-finalized adoption, but you will need to wait until a year after you incurred the expenses.
It is important to remember that this is NOT a deduction. It is a dollar for dollar reduction in the amount of your federal tax liability for the year. A non-refundable tax credit means that taxpayers can benefit from or receive a credit to their federal income taxes ONLY up to the amount of tax liability they would have paid for that year. The amount of the $13,818 you can actually use depends upon your personal income and your federal tax liability. This liability is the amount you are responsible for in federal income taxes for that year.
Thus, those families who have lower incomes may not be able to use the credit and those with moderate incomes often cannot use the full amount. Those families with no tax liability will not benefit from the Adoption Tax Credit this year. Families with incomes of $30,000 to $50,000 will probably only be able to use a portion of the Tax Credit this year. Use of the non-refundable credit phases out for families with modified adjusted gross incomes above $207,580 and goes away completely for those with adjusted gross incomes around $247,580.
The Adoption Tax Credit is good for 6 years– the year you are first eligible to claim it and the following 5 years. Therefore, you are generally still encouraged to file for the credit (IRS Form 8839) if you are normally filing taxes even if you cannot use any of it this year. If your tax liability changes in future years, you can carry this credit forward and use it in the subsequent 5 years.
Qualified adoption expenses are required to claim the credit. Such expenses include costs associated with the legal adoption of a child and can include your attorney’s fees, court costs, adoption agency fees, the cost of your home study, any travel expenses associated with completing your adoption (i.e. food, hotels, airfare), and re-adoption expenses when adopting a child internationally. It is a good idea to review the IRS publications to see the types of expenses the IRS considers qualified. For example, you cannot claim employer reimbursed expenses, payments to a surrogate mother, or anything related to the cost of adopting your spouse’s child.
If you adopted a child from foster care who was designated “special needs” by your state or county and you receive a monthly subsidy or received reimbursement for non-recurring adoption expenses or Medicaid from the state child welfare agency for this child, you can still claim the credit for the qualified adoption expenses. This “special needs” designation simply means that the child was considered hard to place due to age, ethnic background, was part of a minority or sibling group, or had a mental/physical/emotional handicap. You must have a copy of the adoption assistance agreement. Do not confuse this “special needs” designation with those children who may have disabilities or medical conditions as they may not meet the IRS definition of “special needs.” Also, some children adopted from US foster care do not receive subsidies and are therefore not considered “special needs” per the IRS definition.
The credit also has other stipulations and benefits as related to adopting multiple children, when you can claim it depending upon the type of adoption you completed, when you can claim expenses for finalized/non-finalized adoptions, claiming failed US special needs adoptions, the child’s age at adoption finalization, employer provided adoption benefits, and if you adopted in 2012 or earlier. You will want to closely review these exclusions and options before you file for the credit.
The Adoption Tax Credit is a help to adoptive families. Be sure to save your documentation and speak with your tax professional about this option. MLJ Adoptions International wants to help all families take advantage of this option.
Additional information can be found at: IRS FORM 8839 at https://www.irs.gov/pub/irs-pdf/f8839.pdf ; https://www.cacac.org/help/adoption-tax-credit ; and https://creatingafamily.org/adoption-category/adoption-tax-credit-2018/ .