A family that qualifies for the adoption tax credit may also deduct qualifying adoption expenses. However, families must wait one year before filing for the credit. The maximum credit level also still applies no matter how many adoptions took place.
Tax deductible expenses would be travel, meals, lodging, court costs, attorney’s fees, and other expenses directly related to the legal adoption of a child. In addition, adoption expenses that are required by the state as a condition of the adoption may also qualify. You’ll need to save all of your receipts, invoices, and financial documents for submission to the IRS.
Unfortunately, not all adoptive parents will qualify. The ceiling amount of the credit is only available if you spend that amount in qualified adoption expenses that were not reimbursed by an employer or state agency or if the adopted person is one with special needs. Couples or individuals adopting a child who has special needs may claim the entire tax credit regardless of how much they spent in adoption-related expenses.
The adoption tax credit is a non-refundable credit. That means it can lower your tax bill, but will not produce a refund due to the credit. Any unused portion of the credit can be carried forward for up to five years. Expenses accrued by unsuccessful adoptions may also be eligible for deduction. Since the adoption tax credit is a federal program, you’ll want to check with your state for additional adoption benefits.