Topic 607 - Adoption Credit and Adoption Assistance Programs
Tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, which means it's limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. The maximum amount (dollar limit) for 2016 is $13,460 per child.
Qualified adoption expenses For both the credit and the exclusion, qualified adoption expenses, defined in section 23(d)(1) of the Code, include:
An eligible child is an individual who is under the age of 18, or is physically or mentally incapable of self-care.
Qualified adoption expenses don't include expenses that a taxpayer pays to adopt the child of the taxpayer's spouse.
Qualified adoption expenses include expenses paid by a registered domestic partner who lives in a state that allows same-sex second parent or co-parent to adopt his or her partner's child, as long as those expenses otherwise qualify for the credit.
Income and dollar limitations The credit and exclusion are each subject to an income limitation and a dollar limitation. The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (MAGI). If your MAGI amount for 2016 falls between certain dollar limits, your credit or exclusion is subject to a phaseout (is reduced or eliminated). For tax year 2016, the MAGI phaseout begins at $201,920 and ends at $241,920. Thus, if your MAGI amount is below $201,920 for 2016, your credit or exclusion won't be affected by the MAGI phaseout, whereas if your MAGI amount for 2016 is $241,920 or more, your credit or exclusion will be zero.
You must reduce the dollar limit for a particular year by the amount of qualified adoption expenses paid and claimed in previous years for the same adoption effort. For example, if you claimed a $3,000 credit in connection with a domestic adoption in 2015 and paid an additional $13,460 of qualified adoption expenses in 2016 (when the adoption became final), the maximum credit you can claim in 2016 is $10,460 ($13,460 dollar limit, less $3,000 of qualified adoption expenses claimed in 2015).
In computing the dollar limitation, qualified adoption expenses paid and claimed in connection with an unsuccessful domestic adoption effort must be combined with qualified adoption expenses paid in connection with a subsequent domestic adoption attempt, whether or not the subsequent attempt is successful. For example, assume that in 2014 an individual claimed $8,000 in qualified adoption expenses in an unsuccessful adoption effort. In 2015 and 2016 the individual spent a total of $10,000 in qualified adoption expenses in connection with a successful domestic adoption that became final in 2016. The maximum adoption credit allowable in 2016 is $5,460 ($13,460 dollar limit for 2016 less $8,000 previously claimed.)
The dollar limitation applies separately to both the credit and the exclusion, and you may be able to claim both the credit and the exclusion for qualified expenses. However, you must claim any allowable exclusion before claiming any allowable credit. Expenses used for the exclusion reduce the amount of qualified adoption expenses available for the credit. As a result, you can't claim both a credit and an exclusion for the same expenses. Examples 1, 2, and 3 illustrate these rules.
Example 1. In 2016, the following events occur: (a) You pay $13,460 of qualified adoption expenses in connection with an adoption of an eligible child; (b) your employer reimburses you for $3,460 of those expenses; and (3) the adoption becomes final. Your MAGI amount for 2016 is less than $201,920. Assuming you meet all other requirements, you can exclude $3,460 from your gross income for 2016. However, the expenses allowable for the adoption credit are limited to $10,000 ($13,460 total expenses paid less $3,460 employer reimbursement).
Example 2. The facts are the same as in Example 1, except that you pay $18,460 of qualified adoption expenses and your employer reimburses you for $5,000 of those expenses. Assuming you meet all other requirements, you can exclude $5,000 from your gross income for 2016 and claim a $13,460 adoption credit ($18,460 total expenses paid less $5,000 employer reimbursement).
Example 3. The facts are the same as in Example 1, except that you pay $30,000 of qualified adoption expenses and your employer reimburses you for $13,460 of those expenses. Assuming you meet all other requirements, you can exclude $13,460 from your gross income for 2016. You can also claim a credit of $13,460. Because of the dollar limitation, the remaining $3,080 of expenses ($30,000 total expenses paid, less $13,460 dollar-limited exclusion, less $13,460 dollar-limited credit), can never be used for either the exclusion or the adoption credit.
Timing rules: For what tax year can you claim the credit? The tax year for which you can claim the credit depends on the following:
As a result of the timing rules, qualified adoption expenses allowable in the current year may include expenses paid in a former year or years. Example 4 illustrates the difference between the domestic and the foreign timing rules.
Example 4. An adoptive parent pays qualified adoption expenses of $3,000 in 2014, $4,000 in 2015, and $5,000 in 2016. In 2016, the adoption becomes final.
If the adoption in Example 4 is domestic, the $3,000 of expenses paid in 2014 is allowable in 2015 (the year after the year of payment), and may be claimed as a credit on the parent's 2015 tax return. The adoptive parent claims both the $4,000 paid in 2015 and the $5,000 paid in 2016 as a credit on his or her 2016 tax return. The $4,000 paid in 2015 is allowable in 2016 (the year after the year of payment); the $5,000 paid in 2016 is allowable in 2016 (the year of finalization). Accordingly, nothing is allowable in 2014, $3,000 is allowable in 2015, and $9,000 ($4,000 plus $5,000) is allowable in 2016. The $3,000 allowable in 2015 reduces 2015 tax liability, with any excess being carried forward into 2016. Similarly, the $9,000 allowable in 2016 (plus any carried-forward amount from 2015) reduces the 2016 tax liability, with any excess credit, from either year, being carried forward into later years. If the adoption in Example 4 is foreign, the adoptive parent may claim all $12,000 in qualified adoption expenses ($3,000 paid in 2014, $4,000 paid in 2015, and $5,000 in 2016) on the adoptive parent's 2016 tax return, because 2016 is the year when the adoption becomes final.
If the adoptive parent pays an additional $2,000 in qualified adoption expenses in 2017, then that $2,000 is allowable in 2018 (subject to the 2017 MAGI and dollar limitations), whether the adoption is domestic or foreign.
Adoption of U.S. children that a state has determined to have special needs If you adopt a U.S. child that a state has determined to have special needs, you're generally eligible for the maximum amount of credit in the year of finality. Thus, if the adoption of a child whom a state has determined has special needs becomes final in 2016, the maximum credit allowable generally would be $13,460. However, the maximum amount will be reduced by any qualified adoption expenses you claimed for the same child in a prior year or years, and the MAGI limitation may apply.
If you adopt a child whom a state has determined has special needs, and if your employer has a written qualified adoption assistance program, you may be eligible for the exclusion, even if you or your employer didn't pay any qualified adoption expenses.
A child has special needs for purpose of the adoption expenses if:
Filing status To determine your filing status, see Publication 501, Exemptions, Standard Deductions, and Filing Information, and What Is My Filing Status?
If you filed your return using the married filing separately filing status in the year particular qualified adoption expenses are first allowable, you can't claim the credit or exclusion for those particular expenses. You may need to file an amended return to change to a qualifying filing status within the period of limitations.
Example 5. Husband and wife pay qualified adoption expenses of $3,000 in 2014, $4,000 in 2015, and $5,000 in 2016. In 2016, the domestic adoption becomes final. They have filed married filing separately for all prior tax years.
On the 2016 tax return they file married filing jointly and only $9,000 ($4,000 paid in 2015 and $5,000 paid in 2016) of the expenses qualify for 2016. Since they filed married filing separately in 2015 and the $3,000 paid in 2014 is first allowable for 2015, they can't claim the adoption credit for those expenses unless they change their filing status to married filing jointly for 2015.
Form 8839 and instructions To claim the adoption credit or exclusion, complete Form 8839 (PDF), Qualified Adoption Expenses, and attach the form to your Form 1040 (PDF), U.S. Individual Income Tax Return, or Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return. The Form 8839 Instructions contain additional information about the adoption credit and exclusion.
Cited verbatim from the IRS Website
Adoption home study
Utah Home Study
Believe it or not, you don’t need to be a Martha Stewart clone to pass an adoption home study in Utah. The idea of a stranger coming into my home to see whether I was “suitable for a kid” terrorized me. Do I own fitting Tupperware? Are the corners of my fireplace equipped with security guards? Is the water in the toilet bowl the best color of aqua? I was a nervous wreck, to say the least.
Simply said, a home study is a process used to review the lives of future adoptive parents. Although home studies are required for both service and non-agency adoptions, the strategy to conducting a home study varies. Adoption agencies have the independence to develop procedures, policies, and their particular program packet within the rules of the state. They generally provide their own particular caseworkers to conduct the home studies. The home study itself is a written report of the findings of a social worker that has met with you and your partner (and all other children in your family) on several occasions, with at least one assembly taking place in your house.
To prepare for the home study procedure, you’ll probably need to supply the following:
1) Written autobiography (of both future parents)
Most agencies provide guidelines or a format to use, but the bottom line is you’ve got to write about YOU. Describe your previous and current relationship with your parents, your siblings, your extended family, how you were raised, how you were disciplined, your education, how your extended family feels about your adoption interests, your future aims, your religious affiliation, your work and hobbies, your support network, your neighborhood or community, your exposure or involvement with kids in the past and present, why you wish to adopt a kid, how you have concluded feelings about infertility, anticipated relationship with the kid’s birth parents, and whatever else you think speaks about you as someone and would-be parent. During a home study visit, you might be asked for additional information regarding the pieces you've written about.
You must have documentation of birth certificates and marriage licenses.
You'll need to supply letters from 4-5 folks who can attest to your ability to love and raise a youngster and understand you. Attempt to pick individuals who have observed you with kids, who have known you for several years, who are in favor of your adoption strategies and understand.
4) Medical advice
A current physical examination.
The home study in Utah is normally finished before a youngster is identified and referred to the adoptive parents. Before the social worker came to run our home study visit our daughter had been in our house for almost 2 weeks. He was familiar with our house and lived in our neighborhood as it turned out. We talked about the amazing donut store across the corner and our recent trip to Argentina. He made polite remarks about the state of our teen’s room also walked through our house, and checked the locks on the gate around our pool. As soon as I admitted to him how nervous I was about the visit, he said “We want to seek out dwellings suitable and loving for kids. Our job would be to assist you to pass, not look for your faults.
So recall those words that are wise, and most importantly, be yourself. There is a child out there ready to come into your house that is loving and suitable. You will pass your adoption in Utah too.
Nathan Peterson, LCSW