Financial Implications After an Incomplete Adoption
While the emotional impact of an incomplete adoption may be overwhelming, an adoption loss also has a significant impact on a family’s finances. Private agency adoption costs between $20,000-$50,000 depending on the type of adoption and the adoption service provider’s fees. Several of these fees are nonrefundable. Many adoptive parents spend a good amount of their savings on an incomplete adoption. If you find yourself with financial questions following an incomplete adoption, a financial advisor might help you get back on track or work towards affording another adoption, if that is what your family decides. Your Employee Assistance Program (EAP) may offer financial assistance at no cost. A financial advisor will spend time understanding your family’s specific circumstances to offer tailored education and advice. In the meantime, this article will answer a few universal questions that many parents have about finances after incomplete adoption.
Can I claim the adoption tax credit for an incomplete adoption?
Generally, families can claim the adoption tax credit for an incomplete adoption. If it is a US adoption and you had qualified adoption expenses, you can claim the adoption tax credit. However, the adoption is treated as a non-finalized adoption, and you must wait one year after you incur the expenses to claim the credit. So, if you had expenses for an adoption in 2019 but the adoption was not finalized, you are eligible to claim them with your 2020 taxes (typically filed in early 2021).
However, in order to claim the adoption tax credit for an international adoption, the adoption must be finalized. At this time, there are not tax benefits available for incomplete international adoptions.
Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child and include:
Adoption fees
Attorney fees
Court costs
Travel expenses (including meals and lodging) while away from home
Re-adoption expenses relating to the adoption of a foreign child
How do I claim the adoption tax credit?
To claim the adoption tax credit, you need to fill out a Form 8839 for the year of the adoption and include it with your Form 1040. You can claim the adoption tax credit for any number of children you adopt (other than a step-child). If you adopt more than three children, you will need a second form 8839 to list each of the children.
If you had an incomplete US adoption but later adopted successfully, you cannot claim the credit twice. The “Attempted Adoptions of U.S. Children” instructions for Form 8839 states:
If you made more than one attempt to adopt one eligible U.S. child, combine the amounts you spent and complete only the “Child 1” line. Do not report the additional attempt(s) on the “Child 2” or “Child 3” line. Complete the “Child 2” or “Child 3” lines only if you adopted or tried to adopt two or three eligible children.
An incomplete adoption impacts the entire family. Contact BenefitBump if you have questions about accessing services to help your family heal both emotionally and financially.
For more information please visit: The North American Council on Adoptable Children's FAQ resource.