If the taxpayer is married, he or she generally has to file a joint tax return in order to take the adoption credit. However, a married taxpayer who files a separate return may be eligible if he was legally separated under a decree of divorce or separate maintenance or if he was entitled to file as a head of household.

Eligible Child

The expenses connected with the adoption of a child under the age of 18 or a person who is physically and mentally incapable of taking care of himself are eligible for the adoption tax credit.

Qualifying Adoption Expenses

Qualifying expenses are reasonable and necessary adoption fees, court costs, attorney fees, travel expenses, and other expenses directly related to and whose principal purpose is for the legal adoption of an eligible child. Expenses that do not qualify include costs that violate state or federal laws, that are for carrying out any surrogate parenting arrangement, that are for the adoption of a spouse's child, that are paid using funds from a federal, state or local program, that are allowed as a credit or deduction under any other federal income tax rule, or that were paid or reimbursed by the taxpayer's employer or anyone else.

Special Needs Adoptions

If a taxpayer adopts a special needs child as defined by the Internal Revenue Code, the taxpayer may be entitled to an adoption credit for the maximum amount even if the taxpayer has not incurred the full amount of expenses. This special rule only applies to special needs adoptions finalized after the year 2002.

An adoption is a special needs adoption if the child has special need and is a citizen or resident when the adoption process begins. There has to have been a determination by a state that the child cannot or should not be returned to his her natural parents and that because of special factors, assistance was needed to place the child with adoptive parents.

When to Claim an Adoption Tax Credit

If a taxpayer adopts an eligible child who is a U.S. citizen or resident and pays qualifying expenses before the adoption become final, the credit is delayed one year. The credit is allowed in the year after the year the payment was made even if the adoption is not yet final. If the taxpayer pays qualifying expenses in the year the adoption becomes final, he is entitled to take the credit in that same year. If qualifying expenses are paid in the year after the adoption is finalized, the taxpayer can claim the credit in the year the payment was made.

If the taxpayer adopts a child who is not a U.S. citizen or resident at the time the adoption proceedings begin, he is only entitled to take the credit in the year the adoption is finalized. A taxpayer is entitled to take a credit for adoption expenses of a foreign child paid after the adoption was finalized in the year of payment.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.