Qualified Adoption Expenses
Under US tax law, qualified expenses include: adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to and for which the principal purpose is the legal adoption of an eligible child. The adoption tax credit is per child, thus the credit doubles when adopting two children in the same year. It is also important to note that this is a "credit" not a mere "deduction." A tax credit is a dollar for dollar reduction of federal tax, not a reduction of taxable income, such as with a mortgage payment.
Parents who adopt a child with special needs (meaning a child who receives adoption assistance/adoption subsidy) can claim the full credit without documenting expenses. (See the IRS FAQs, paragraph 2 of question 1 at http://www.irs.gov/individuals/article/0,,id=231663,00.html.) Parents will need to document the child has special needs, and this documentation can include the adoption assistance/adoption subsidy agreement, a letter from the state/county approving the child for adoption assistance/adoption subsidy, or a letter from the state/county child welfare agency stating that the child has special needs. See question 13 at the FAQs for information about documentation.
Read more about this topic: Adoption Tax Credit
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