Are Adoption Expenses Tax Deductible?

by R.J. Bowman ; Updated July 27, 2017
Adoption can fill the missing pieces in your family -- and give you tax benefits, too.

Some adoption expenses are tax deductible. If your employer reimburses you for the cost of adoption expenses, the reimbursement can be deducted, lowering your taxable income. If you pay for the adoption out of your own pocket, however, the expenses are a tax credit, not a deduction. This credit lowers the amount of tax you owe or even increases your refund and is actually more valuable than an income deduction.

Qualifying Expenses

The adoption credit takes into account the expenses the family incurs during the adoption process. This would include anything related to the legal process, such as the cost of an adoption lawyer, fees paid to an adoption agency and court costs. Qualified expenses also include traveling to pick up the child; car travel expenses or plane tickets are included as well as all hotel and meal costs during the stay.

Special Needs Child

Adopting a special needs child through a state program usually means that the state will pay for everything and the adopting parent does not have any out-of-pocket costs. In this case, the adopting parent still gets to take a tax credit. Special needs children for this purpose are any children the state determines may not be adopted without the incentive of state funding to pay the adoption fees. This could be a child with health problems or an older child.

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Forms and Documentation

To get the tax credit for your adoption expenses, you must file form 8839. When you have paid adoption-related expenses in a year that an adoption does not become final, you must wait one year before claiming the expense on Form 8839. For example, if you paid fees in 2009, you may claim them for the 2010 tax year. However, in the year that an adoption becomes final, you may claim the expenses immediately. In addition to Form 8839, the adopting parents must present proof of adoption. The documentation necessary is different in each situation, and your lawyer can walk you through this. This documentation must be sent in the mail; parents claiming the adoption credit are not eligible to e-file.

Carryover and Refunds

In the past, the adoption credit could lower a family's tax obligation to zero, but the remaining credit could not increase the amount of refund the family received. The remaining amount of tax credit could be carried over to lower the taxes owed in future years. The credit could be carried over for up to five years or until it is all used. This has changed for 2010. Now the credit is refundable. This means that if your qualified adoption expenses can actually increase the amount of refund you receive.

About the Author

R.J. Bowman has a Bachelor's degree in accounting with a minor in English from Pensacola Christian College. After college, she taught English to seventh graders until becoming a mom. At that time, she found freelance writing to be a great way to keep her writing skills sharp.

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