Your client may be eligible for tax credit of up to $5,000 for costs incurred while adopting an eligible child. Qualifying expenses include adoption fees, court costs, attorney fees, and traveling expenses while away from home for costs incurred in the process of legally adopting a child. An eligible child must be under the age of 18 or under the age of 24 and physically or mentally unable to take care of himself. Your client does not qualify for the credit if the adoption is for his/her spouse's child or for the carrying out of any surrogate parenting arrangement.
If the adoption is for a child with special needs, your client may be eligible for a credit for up to $6,000. A child is deemed a special needs child if he fits the following requirements:
This credit is claimed on Form 8839, Qualified Adoption Expenses. Generally, married couples must file jointly to claim this credit, unless your client is filing separately under a decree of divorce or separate maintenance or he/she lived apart from his/her spouse for the last six months of the year and their home was the primary residence of the eligible child. Your client is eligible for a separate credit for each child they adopt.
The amount of the credit is phased out for people with an adjusted gross income between $75,000 and $115,000. Those with an adjusted gross income that exceeds $115,000 are not eligible to take the credit.
If the child is a US citizen or resident, the adoption credit can be claimed within the year the expenses were paid, regardless of whether the adoption has been finalized or not. If expenses are paid the year after an adoption became final, the credit is still taken in the year of payment. However, if the qualifying child is a foreign child, the credit may not be claimed until the year the adoption is finalized.
After 2001, the adoption will apply only if the eligible child is a child with special needs.