There are special rules that determine when you can claim the Adoption Tax Credit. The most important factor is whether it's a domestic or a foreign adoption. But the year you pay adoption expenses and when (if ever) the adoption is finalized also make a difference.
For domestic adoptions (within the US), if you pay qualified adoption expenses in any year before the year the adoption becomes final, you can claim the credit for those expenses on your tax return for the year after the year of payment.
For foreign adoptions, you can’t claim the credit for any qualified adoption expenses until the tax year the adoption becomes final. If you paid qualified expenses in any previous year, you have to wait to claim the credit for them until the year the adoption is finalized.
The Adoption Tax Credit is only available for “qualified adoption expenses.” Basically, this includes any reasonable and necessary out-of-pocket expenses directly related to the legal adoption of an eligible child. For example, you can claim the credit for:
- adoption fees
- attorney fees
- court costs
- travel expenses while away from home (including meals and lodging)
Expenses paid in the year the adoption is finalized or later can be claimed for the tax year payment is made.
Please see this TurboTax help article and also IRS Tax Topics 607 for more information.
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