In the process of adoption, there is always a bill that keeps popping up; the IRS provides an adoption tax credit which is meant to make adoption much cheaper. One can qualify for a refund on adoption expenses that meet the IRS qualification through a tax credit of up to $13,360 per child in 2011 and $12,170 in 2012. Even if the adoption was not finalized in 2011 or fails to get finalized in 2012, taxpayers can still qualify for the full tax credit. Taxpayers without qualified expenses but with a special need child or children can also qualify for this credit.

The value of one’s tax credit is arrived at by adding up all the genuine and reasonable expenses that one accumulated during the adoption process. These expenses might include legal costs, travel costs, health costs of the birth mother, and foreign adoption fees etc.

Among the exceptions to the adoption tax credit are the expenses incurred through adoption of a spouse’s child or taking part in surrogate parenting. Additionally, one cannot include amounts that were paid by one’s employer, either directly or indirectly on one’s behalf, to assist with the adoption, although one would not have to pay taxes on such amounts. Furthermore, if one makes an attempt to adopt from a foreign country and the adoption fails, then one cannot deduct those expenses. However, should the adoption of an international child fail but that of yet another international child goes through, then one can deduct all those expenses up to the maximum credit.

The rules of adoption vary depending on whether the adoption is domestic or international. Adoption processes can take over a year and it is therefore, important to keep records of all expenses and when the adoption was finalized.

In domestic adoption, if one incurs adoption expenses within the year the adoption is finalized, then one can use the expense towards their adoption tax credit in that year. For expenses incurred in a different year from the one in which the adoption is finalized, the expenses can be used in the year in which they were incurred.

For foreign adoptions, one must wait for finalization of the adoption before they can use their adoption tax credit. After the finalization, one can use all the expenses incurred in the entire process for the adoption tax credit for that year. If one incurs any additional expenses in the years following finalization, one can use them towards the tax credit in the year they are incurred.

In 2011, the tax credit was refundable, which meant that one could get the credit even if they did not pay an equivalent amount in taxes, but in 2012, it is non-refundable and reduced. To claim the adoption tax credit, one needs to fill a form “8839, Qualified Adoption Expenses”. The process might be complex, depending on type of expenses one is filling, and it is therefore, advisable to seek professional help.