Instructions for Form 8839 (2020) Checklist
Form 8839 allows taxpayers to claim the adoption credit for qualified adoption expenses paid during the 2020 tax year. The maximum federal adoption tax credit per eligible child is $14,300 for 2020, subject to modified adjusted gross income limitations.
Eligibility Requirements and Filing Status
You may claim the adoption credit or exclude employer-provided adoption benefits if you meet three specific conditions outlined in the IRS instructions. Your filing status must be single, head of household, qualifying widow or widower, or married filing jointly.
Modified adjusted gross income must fall below $254,520 for 2020, or you must have a carryforward of an adoption credit from 2019. In Part I of Form 8839, it is necessary to provide all pertinent information regarding the eligible child.
The adopted child must qualify as an eligible child under federal income tax law. An eligible child includes any individual under age 18 or any person physically or mentally unable to care for themselves.
Domestic adoption involving a United States citizen, national, or resident alien child allows you to claim the credit even if the adoption never becomes final. Foreign adoptions require finalization before you can take the adoption credit on your federal income tax return.
Income Phase-Out Thresholds for 2020
The 2020 adoption tax credit begins to phase out when modified adjusted gross income exceeds $214,520 for taxpayers filing married jointly. The complete phase-out occurs at
$254,520 of modified adjusted gross income.
Calculate your modified adjusted gross income by taking the amount from Form 1040, line 11, and adding back certain exclusions. Subtract the phase-out threshold from your modified adjusted gross income, divide the excess by $40,000, round up to the next whole percent, and reduce your gross credit by that percentage.
Qualified Adoption Expenses
Qualified adoption expenses include reasonable and necessary costs directly related to the legal adoption of an eligible child. These expenses must serve the principal purpose of legally adopting an eligible child to qualify for the credit.
The following expenses qualify for the adoption credit
- Adoption fees and agency placement fees that are paid to licensed adoption agencies
qualify as reasonable and necessary expenses for purposes of claiming the adoption credit.
- Attorney fees and other legal costs that are incurred as part of the adoption process are
considered qualified adoption expenses when they directly relate to legally adopting an eligible child.
- Court costs, filing fees, and recording fees that are required by state or local authorities
during the adoption proceedings are treated as qualified adoption expenses under IRS rules.
- Travel expenses, including the cost of meals and lodging while you are away from home
for adoption-related purposes, qualify when they are directly connected to completing the adoption.
- Fees paid to social service agencies, including required home study costs, are
considered qualified adoption expenses because they are necessary to meet legal adoption requirements.
- Counseling fees that are directly related to the adoption process qualify as adoption
expenses when they are incurred to facilitate the legal adoption of an eligible child.
- Re-adoption expenses for a foreign child whose adoption is completed in the United
States are treated as qualified adoption expenses for purposes of the adoption tax credit.
Expenses that violate state or federal law do not qualify for the credit. Costs for carrying out a surrogate parenting arrangement are excluded from qualified adoption expenses. Expenses for adopting your spouse’s child, amounts reimbursed by your employer, and expenses allowed as a credit or deduction under any other federal income tax law provision cannot be claimed.
Employer-Provided Adoption Assistance Coordination
Employer-provided adoption benefits appear in Box 12 of Form W-2 with Code T. Your employer may pay qualified adoption expenses directly to you or to a third party under a qualified adoption assistance program.
These amounts reduce your eligible adoption credit dollar-for-dollar because you cannot claim both the employer-provided assistance and a duplicate credit on Form 8839. Calculate the adoption credit in Part II only after completing Part III to account for any employer-provided adoption benefits.
A qualified adoption assistance program must be a separate written plan established by an employer to provide adoption assistance to its employees. You may exclude up to $14,300 of employer-provided adoption benefits from your income in 2020, subject to the same modified adjusted gross income phase-out rules.
If your employer paid or reimbursed qualified adoption expenses shown in Box 12 of your Form
W-2 with Code T, subtract those amounts from your total adoption expenses. This calculation determines your available credit on Form 8839.
Timing Rules for Domestic and Foreign Adoptions
Domestic adoption of a United States child follows specific timing rules based on when you paid qualified adoption expenses. Expenses paid in 2019 for an adoption not finalized by the end of
2019 are claimed in 2020.
In 2020, expenses incurred for an adoption that was finalized in 2020 are claimed on your 2020 tax return. For unsuccessful adoption attempts involving a United States child, you can still claim qualified adoption expenses in the year following payment.
Foreign adoptions require finalization before you can claim the adoption credit or exclusion. You must combine all qualified adoption expenses paid in 2020 and prior years for a foreign child. All expenses are claimed in the year the adoption becomes final, regardless of when you paid them.
Special Needs Adoption Rules
A child with special needs must meet three conditions to qualify for enhanced adoption credit benefits. The child must have been a United States citizen or resident when the adoption effort began.
There must be a determination by a state or the District of Columbia that the child is either unable to or should not return to the parents' residence. The state must have determined that the child will not be adopted unless assistance is provided to the adoptive parents.
States consider several factors when making special needs determinations, including ethnic background, age, minority or sibling group membership, and medical or physical conditions. For special needs adoptions that became final in 2020, you may claim the full $14,300 credit even if you paid no qualified adoption expenses.
You must maintain evidence of the state’s special needs determination in your records. This documentation supports your claim for the maximum credit when adopting special needs children from foster care or state agencies.
Credit Carryforward and Tax Liability Limits
The adoption credit is a nonrefundable credit that cannot exceed your federal income tax liability for 2020. Unused credits may be carried forward for up to five years or until used, whichever comes first.
This standard carryforward period applies to all adoption credits claimed on 2020 returns. Use the Adoption Credit Carryforward Worksheet included in the Form 8839 instructions to calculate the amount you can carry forward to 2021.
Enter your adoption credit on Schedule 3, line 6, after completing Form 8839 calculations. The credit reduces your federal income tax liability but does not create a refund beyond the taxes you owe.
Documentation and Record-Keeping Requirements
Maintain detailed records of all qualified adoption expenses paid during 2020, including receipts, invoices, and proof of payment. Document the date, payee, amount, and nature of each expense to substantiate your adoption credit claim.
Group expenses by category to align with the Form 8839 worksheet format
- Legal fees and attorney costs include amounts paid for professional legal services that
are necessary to complete the adoption in accordance with state or federal law.
- Agency fees and placement costs consist of payments made to licensed adoption
agencies for services related to matching, placement, and facilitating the legal adoption of an eligible child.
- Court costs and filing fees refer to required charges imposed by state or local courts to
process, file, and finalize adoption proceedings.
- Travel expenses, including meals and lodging, cover costs incurred while traveling away
from home when such travel is necessary to complete adoption-related requirements.
- Counseling fees and home study costs include payments for required evaluations,
assessments, and counseling services that support and document the adoptive placement process.
Retain evidence of the state’s special needs determination if you adopted a child with special needs. Your records must show that no expense was previously claimed under another federal program or reimbursed by your employer beyond amounts reported in Box 12 of your Form W-2 with Code T. The Internal Revenue Service may request documentation to verify your qualified adoption expenses, so keep all supporting records for at least three years.
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