Finalize an adoption in 2014? Be sure to claim the adoption tax credit. Adoptive parents can claim up to $13,190 in tax credit per child. If the child is deemed to “have special needs” (having been in foster care may qualify*), no actual adoption expense need be shown to claim the full $13,190 credit. Otherwise the credit cannot exceed the reasonable and necessary expenses actually paid by the adoptive parents, including legal fees. A few exceptions apply. The credit is not available for step-parent adoptions and it is not refundable, meaning adoptive parents can only get the credit to the extent they owe federal income tax. Certain income limits apply.
*ATTENTION PARENTS WHO ADOPTED FROM FOSTER CARE: The IRS definition for a children who “have special needs” is not what you think. It is essentially a child not adopted from a foreign country who Missouri has determined should not be returned to the biological parent’s home; and probably will not be adoptable without assistance provided to the adoptive family. ALMOST ANY CHILD ADOPTED FROM FOSTER CARE QUALIFIES! This could reduce your tax bill by up to the $13,190, even if you didn’t pay a dime in adoption expenses.
EXAMPLE 1. In 2014, you have actual expenses of $15,000 in connection with the finalization of an adoption of an eligible child. $13,190 will be reduced from the amount of taxes you owe for 2014 (assuming your total taxes owed for the year were at least $13,190).
EXAMPLE 2. In 2014 you adopt a child from foster care. All fees are paid by the state through an adoption subsidy. Your taxes owed for the year are reduced by $13,190 (assuming your total taxes owed for the year were at least $13,190).
For more information, review IRS guidelines