Qualified Adoption Expenses (QAE): Definition, Eligibility, and Tax Benefits
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Summary:
Qualified adoption expenses (QAE) encompass necessary costs associated with adopting a child under 18 or a disabled individual requiring care. These expenses, defined by the Internal Revenue Service (IRS), can be used to claim an adoption credit or exclusion, which lowers the taxable income of adopting parents.
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What are qualified adoption expenses (QAE)?
Qualified adoption expenses (QAE) refer to essential costs incurred in adopting a child below 18 years or a disabled individual in need of care. These expenses are recognized by the Internal Revenue Service (IRS) as reasonable and necessary, qualifying for an adoption credit or exclusion, which lowers the taxable income of adopting parents.
Understanding qualified adoption expenses (QAE)
To benefit from an adoption credit for qualified adoption expenses, taxpayers must meet specific eligibility criteria outlined by the IRS. Reporting these expenses requires the use of IRS Form 8839. Taxpayers need to furnish details such as the adopted child’s name, year of birth, and identifying information, including whether the child has special needs or is foreign-born.
Maximum qualified adoption expenses
The maximum credit amount allowed for adoptions fluctuates annually. For instance, in 2022, the limit stood at $14,890 per child, while it increased to $15,950 per child in 2023. However, the adoption tax credit is no longer refundable, meaning the total tax must equal or exceed the credit for its full benefit. Any unused credit can be carried forward for up to five years.
Examples of qualified adoption expenses
Qualified adoption expenses, as defined by the IRS, encompass various adoption-related costs, including adoption fees, court costs, attorney fees, and travel expenses. These expenses may be incurred before the identification of an eligible child and can be claimed leading up to the adoption process.
Qualified adoption expense exclusions
Certain expenses are excluded from consideration as qualified adoption expenses. For instance, costs related to adopting a spouse’s child are not eligible. Additionally, regulations govern the timing of claiming the credit concerning when the expense occurs, and dollar limits apply to costs related to a singular adoption effort.
When can you claim an adopted child on your taxes?
An adopted child can be claimed on taxes once the adoption is legally finalized, provided all eligibility requirements are met. The IRS treats the adopted child similarly to a biological child after legal adoption.
Frequently asked questions
Can I claim qualified adoption expenses for an adoptee older than 18 years old?
The IRS mandates that an eligible child for qualified adoption expenses must be under 18 years old, with the exception of those physically or mentally incapable of self-care.
Can same-sex couples claim qualified adoption expenses?
Yes, same-sex couples can claim qualified adoption expenses, including costs incurred by a domestic partner in states permitting same-sex adoption.
Are qualified adoption expenses different for special needs children?
Taxpayers adopting special needs children may qualify for the maximum credit amount in the year of adoption, subject to MAGI limitations and prior expenses claimed.
Key takeaways
- Qualified adoption expenses (QAE) cover essential costs associated with adopting a child under 18 or a disabled individual requiring care.
- IRS-defined qualified adoption expenses include adoption fees, court costs, attorney fees, and travel expenses.
- The maximum credit amount for adoptions fluctuates annually and is subject to income limits and phase-out thresholds.
- An adopted child can be claimed on taxes once the adoption is legally finalized, provided eligibility criteria are met.
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