Tax benefits of adoption

The adoption credit has become one of the most valuable tax credits, potentially worth over $13,000 per adopted child. And thanks to a loop-hole in the tax code, it has become one of my personal favorite tax credits.

I have many clients in same-sex marriages. As a result of DOMA, the IRS does not recognize these marriages, and does not consider the couple to be each other’s “spouse”. Because they are not recognized as “spouses” by the IRS, same-sex couples are able to take this credit to cover the adoption costs incurred for both spouses to become legal parents of the child. (Normally, this credit isn’t allowed for the costs incurred to adopt your spouse’s child as your own.) In fact, in the case of a same-sex married couple where the child is a special needs child, the IRS would permit the full $13,000 credit for one spouse to become the legal parent of the child…even though the actual cost may be far less than $13,000.

It would be much better if same-sex married couples simply got the same treatment as other married couples, but as long as this inequality exists, it always makes me smile to find loop-holes like this that work in favor of same-sex couples.

IRS Tax Tip 2012-42

If you paid expenses to adopt an eligible child in 2011, you may be able to claim a tax credit of up to $13,360.

Here are six things the IRS wants you to know about the expanded adoption credit.

  1. The Affordable Care Act increased the amount of the credit and made it refundable, which means you can get the credit as a tax refund even after your tax liability has been reduced to zero.
  2. For tax year 2011, you must file a paper tax return, Form 8839, Qualified Adoption Expenses, and attach documents supporting the adoption. Taxpayers claiming the credit will still be able to use IRS Free File or other software to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.
  3. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and/or the state’s determination for special needs children.
  4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
  5. An eligible child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.
  6. If your modified adjusted gross income is more than $185,210, your credit is reduced. If your modified AGI is $225,210 or more, you cannot take the credit.

For more information see the Adoption Credit FAQ page available at or the instructions to IRS Form 8839, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).


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