Form 8839 Adoption Tax Credit Checklist for 2018

Tax Cuts and Jobs Act established specific per-child credit limits and revised income phase-out thresholds for this tax year.

Confirm Your Adoption Qualifies for the Credit

Verify the adoption became final during 2018 or earlier in a prior tax year. The child must be a

U.S. citizen, national, or resident alien at the time the adoption effort began.

An eligible child includes any child under age 18 or any disabled individual physically or mentally unable to care for themself. Stepchild adoptions do not qualify for this credit under

Internal Revenue Service rules.

Domestic adoption of a child with special needs may allow you to claim the maximum credit even if you paid no qualified adoption expenses. The state must determine that the child could not or should not be returned to the parents' home and that the child would not be adopted without the assistance of adoptive parents.

Identify Your Qualified Adoption Expenses

Qualified adoption expenses are reasonable and necessary costs directly related to legally adopting an eligible child. You must pay these expenses primarily to complete the legal adoption of an eligible child.

Allowable expenses include the following

• Court costs and attorney fees that are directly related to the legal adoption process

qualify as allowable adoption expenses.

• Adoption agency fees and required home study fees qualify as adoption expenses when

they are necessary to complete the adoption.

• Travel costs related to the process, including meals and lodging while you are away from

home, qualify as adoption expenses.

• Re-adoption expenses incurred in connection with the adoption of a foreign child qualify

as allowable adoption expenses.

You cannot claim expenses reimbursed by your employer or paid by a third party under any state, local, or federal program. Expenses that violate state or federal law do not qualify for the credit.

Foreign adoption expenses paid before the adoption became final must be tracked separately.

These expenses may face different timing requirements for claiming the credit on your federal income tax return.

Check the 2018 Modified Adjusted Gross Income

Phase-Out Range

Your modified adjusted gross income determines whether the income limit affects your credit or exclusion. For 2018, the phase-out begins at $207,140 and eliminates the credit at $247,140.

The credit is reduced proportionally over the $40,000 phase-out range using this formula: (MAGI minus $207,140) divided by $40,000, multiplied by your tentative credit amount. This range applies to all filers regardless of filing status or number of children adopted.

Calculate Your Credit Amount Using the 2018 Statutory

Limit

The maximum adoption credit per child for 2018 is $13,810 for domestic adoptions. International adoptions follow the same dollar limit but have different timing rules for when you can claim the credit.

If you and another person, other than your spouse, each paid qualified adoption expenses to adopt the same child, the $13,810 limit must be divided between you. Special needs adoption rules allow you to claim up to $13,810 even if you paid less than that amount in actual expenses.

Complete Form 8839 and Attach to Your Federal Income

Tax Return

Form 8839 must be filed with your 2018 Form 1040 and cannot be filed separately. Ensure your federal income tax return is properly identified with your name, address, and Social Security number.

Complete lines 1 through 5 with the child’s name and taxpayer identification number, or enter the date of birth if no TIN is available. Indicate whether the adoption is domestic or foreign, and mark the year the adoption became final.

Reconcile Employer-Provided Adoption Assistance

Benefits

Report any adoption assistance payments your employer made directly or through a cafeteria plan during 2018 on lines 6 and 7. The 2018 maximum exclusion for employer-provided adoption benefits is $13,810 per child.

Any assistance exceeding this limit must be included in your income on Form 1040. You can claim both the exclusion and the credit for expenses of adopting an eligible child, but you cannot claim both benefits for the same expenses.

Employer-provided adoption benefits should be shown in box 12 of your Form W-2 with code T.

Your salary may have been reduced to pay these benefits through a qualified adoption assistance program.

Calculate Your Tentative Credit and Apply the MAGI

Reduction

Enter your eligible adoption expenses on line 8 of Form 8839 after excluding any amounts reimbursed by your employer. Calculate your tentative credit before phase-out on line 9 by subtracting any prior year claimed amounts from the maximum credit allowed.

Apply the 2018 MAGI phase-out calculation on line 10 if your modified adjusted gross income exceeds $207,140. The phase-out reduces your credit proportionally based on how much your

MAGI exceeds the threshold within the $40,000 reduction range.

Determine Your Final Credit and Carryforward Eligibility

Enter your final adoption credit on line 11 after any phase-out reduction. This amount transfers to Schedule 3 of Form 1040 and reduces your federal income tax liability.

The 2018 credit is nonrefundable, meaning it cannot exceed your tax liability or generate a refund. Unused credit may be carried forward to future years for up to five years or until used, whichever comes first.

Use the Adoption Credit Carryforward Worksheet to calculate the amount available for carryforward to 2019. Keep this worksheet with your tax records because you will need it to figure your credit in subsequent years.

Understand Timing Rules for Domestic and Foreign

Adoptions

Timing rules differ significantly depending on whether you are completing a domestic adoption or an international adoption. For domestic adoption of a U.S. child, you can take the credit even if the adoption never became final.

Expenses paid in the year before the adoption became final are claimed in the following year. All expenses that were incurred in the year of the adoption's finalization are claimed in the same year.

For foreign adoption, you cannot take the credit or exclusion unless the adoption becomes final.

Once the foreign adoption is final, you claim all expenses paid in that year and all prior years on your return for the year the adoption became final.

A child is a foreign child if they were not a citizen or resident of the United States at the time the adoption effort began. International adoptions must follow specific revenue procedures to determine the year of finality under Hague or non-Hague adoption rules.

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