Qualified Adoption Expenses (QAE)
What it is:
Qualified adoption expenses (QAEs) are costs associated with adopting a child. They are generally tax-deductible and may even qualify for a tax credit.
How it works/Example:
For example, let's assume that Jane would like to adopt a child. The adoption agency has indicated that the adoption will cost $30,000. The IRS allows Jane to take a $13,170 tax credit to help offset qualified adoption expenses. The costs can include attorney fees, court costs, and travel expenses.
Why it matters:
Adoption is expensive, and in order to facilitate more of them, the IRS allows parents to recoup some of the costs. However, the costs of adoption vary considerably: parents who adopt special-needs children, for example, receive a full adoption tax credit even if the adoption costs are less than the amount of the tax credit. Additionally, the credit phases out for parents with high incomes.