25.13 Qualifying for the Adoption Credit

A tax credit of up to $12,650 may be available on your 2012 return for the qualifying costs of an eligible child. An eligible child is a child under age 18, or any person who is physically and mentally incapable of self-care. The credit is phased out ratably for those with modified adjusted gross income between $189,710 and $229,710.

The credit is claimed on Form 8839. If you paid qualifying adoption costs in 2012 but the adoption was not final at the end of the year, the credit may not be claimed on your 2012 return (25.15).

If you are married, you generally must file a joint return to take the adoption credit or exclusion. You may take the credit or exclusion on a separate return if you are legally separated under a decree of divorce or separate maintenance, or if you lived apart from your spouse for the last six months of the tax year and (1) your home is the eligible child’s home for more than half the year and (2) you pay more than half the cost of keeping up your home for the year.

Qualified adoption expenses.

Qualifying adoption expenses are reasonable and necessary adoption fees, court costs, attorney fees, travel expenses away from home, and other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. Do not include expenses paid or reimbursed by your employer or any other person or organization. You may not claim a credit for the costs of a surrogate parenting arrangement or for adopting your spouse’s child.

Employer plans.

As discussed in 3.6, an exclusion from income is also available to employees if adoption expenses are paid through a qualifying employer program, subject to rules similar to that of the credit. If you receive employer adoption benefits that are less than your qualifying adoption expenses, you may be able to claim the credit on Form 8839.

Law Alert

Adoption Credit Lowered and No Longer Refundable

For 2012, the amount of the maximum credit is $12,650, down from the $13,360 credit allowed for 2011. Also, the adoption credit for 2010 and 2011 was refundable, but for 2012 the credit is nonrefundable, meaning that it is limited to tax liability.

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