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What is the federal adoption tax credit?

Adopting a child in Kentucky can be one of the most rewarding and selfless things you can do. However, it can also be pretty expensive. The United States federal government makes a tax credit available to help make it easier to bear the costs of bringing a new child into your home.

The federal adoption credit may be used if you are adopting children from overseas, as well as from within the United States and its territories. Your new child's origin may affect the time periods for which you are allowed to claim the credit, though.

For children adopted from abroad, the year the adoption becomes final is also the year in which the credit must be claimed. The credit may be used to cover expenses you incur for the finalization year and the year prior.

If you attempt to adopt from within the U.S., you may be able to use the credit even if you are not ultimately able to find a child to adopt, or are unable to finalize the adoption. Unlike with a foreign adoption, you could claim the credit in the year following the one in which you had to pay adoption-related costs.

The credit is nonrefundable, so you cannot create a negative tax liability using the credit. The credit may only be applied in the adoption of eligible children, defined as being unable to take care of themselves, or being younger than 18. Additionally, you may not use the credit when adopting your spouse's child.

Source: Internal Revenue Service, "Topic 607 - Adoption Credit and Adoption Assistance Programs," accessed 06/01/2016

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