2004 tax law provides a credit of up to $10,390 for qualifying expenses paid to adopt an eligible child. Qualifying expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses for which the principal purpose is the legal adoption of an eligible child. The adoption credit is an amount subtracted from your tax liability. Although the credit generally is allowed for the year following the year in which the expenses are paid, a taxpayer who paid qualifying expenses in 2004 for an adoption which became final in 2004, may be eligible to claim the credit on the 2004 return. The adoption credit is not available for any reimbursed expense. In addition to the credit, up to $10,390 paid or reimbursed through the year 2004 by your employer for qualifying adoption expenses may be subtracted from your gross income.
For more information on the tax credit, see publication 968 Tax Benefits for Adoption (available on the 2004 list of forms and publications) and Form 8839 (with instructions) at irs.gov, or take the “Understanding the Adoption Tax Credit” class at adoptionlearningpartners.org.
The IRS has now made it possible for families adopting domestically to claim the tax credit once your child is received and in your home but prior to the finalization of the adoption. For example, let’s say that you received your baby in the month of October but are not scheduled to finalize your adoption until the next tax year. You can still take your tax credit in the year that you received your child by filling out form W-7A “Application for Taxpayer Identification Number for Pending U.S. Adoptions”. This will assign your child a temporary ID number in lieu of the social security number that is normally required when claiming dependent children.
You can download this form from the IRS website here.