For adoptions finalized in 2017, the adoption tax credit is up to $13,570 per child. This means you get a credit for the expenses you paid.
The 2017 adoption tax credit is not a refundable credit, which means you only benefit from the credit if you have federal income tax liability.
If all three of the children were determined to be "special needs " (see below for the adoption credit definition of special needs," then you can claim the full credit ($13,570) for each child even if it did not cost you that much. If any of the three are not "special needs" then you will only be able to add together the amount of the actual expenses you paid to do the adoption for that child.
For example: Child - Special needs- $13,570 credit automatically.
Child - Not special needs- add your out of pocket expenses paid for the adoption and that is your credit. It has to be money you paid.
Special Needs AdoptionsIf you finalized in 2017 the adoption of a child that the state has determined to have special needs (meaning the child receives adoption assistance/adoption subsidy benefits), you can claim the maximum credit of $13,570 as your qualified adoption expenses—whether or not you had any expenses.
For purposes of the adoption tax credit, an adoption is considered a special needs adoption if a US child adopted from foster care (and some private domestic adoptions) receives adoption subsidy or adoption assistance benefits (which can include a monthly payment, Medicaid, or reimbursement of nonrecurring expenses). The instructions for the 2017 tax credit explain that to be considered a child with special needs, the child must meet all three of the following characteristics:
- “The child was a citizen or resident of the United States or its possessions at the time the adoption effort began (US child).
- A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents’ home.
- The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
- The child’s ethnic background and age,
- Whether the child is a member of a minority or sibling group, and
- Whether the child has a medical condition or a physical, mental, or emotional handicap.”
For all other adoptions (except those where you adopt your spouse’s child, which are not eligible for the credit), you can claim a credit based on your qualified adoption expenses, which are the reasonable and necessary expenses paid to complete the adoption as long as those expenses are not reimbursed by your employer or the government. If your adoption-related expenses are less than $13,570, you claim only the amount of the expenses. If expenses exceed $13,570, the maximum you claim is $13,570 per child.
Please note that international adoptions cannot be claimed until the adoption is finalized. For US domestic adoptions, you can claim qualified adoption expenses for non-finalized or never finalized adoptions the year after you incur them.
Claiming the adoption tax credit (as explained above) is different than being able to benefit from the credit. How much, if any, of the adoption tax credit you will use depends on your federal income tax liability in 2017 (and the next five years).
Federal tax liability is the amount you are responsible for in federal income taxes. If you have ever done your taxes manually, it’s roughly the amount you would look up in the tax tables in the back of the instructions. If you want to see what your tax liability was in 2016, you can look at line 47 of Form 1040 (or line 30 of Form 1040A). If the line is blank or zero, you had no federal income tax liability that year.
You have six years (the year you first claimed the credit plus five additional years) to use the credit.
If you have no tax liability you will not benefit from the adoption credit this year. If you would otherwise file taxes, we would still encourage you to claim the adoption tax credit with your taxes. You will then be able to carry the credit forward to future years in case the credit becomes refundable or your tax situation changes. (If a tax preparer wants to charge extra to file for the adoption tax credit and you won’t benefit at all with your 2017 taxes, you might want to wait and amend your taxes if the credit is made refundable or your tax liability increases.)
