Are you an adoptive parent or in the process of adopting a child? If so, it’s crucial to be aware of the potential tax credits available to you. Among them is the often-overlooked Adoption Tax Credit. By taking advantage of this credit, you can receive significant financial assistance to help cover the costs of adoption.
Understanding the Adoption Tax Credit
The Adoption Tax Credit is a provision designed to assist families with the expenses incurred during the adoption process. Whether you’re adopting domestically, internationally, through private agencies, or from foster care, you may be eligible to claim this credit.
Adoption Tax Credit Essentials
Maximum Credit Amount: For the tax year 2024, the maximum adoption credit per eligible child is $16,810. This substantial credit can significantly offset adoption-related expenses.
Income Limits: While the credit is available to many adoptive families, there are income limits that could impact the amount you can claim. The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (MAGI). If your MAGI falls within certain thresholds for the tax year, you may be subject to a phaseout of the adoption credit or exclusion. In 2024, this range starts at $252,150 and ends at $292,150. If your MAGI is below $252,150, your credit or exclusion won’t be impacted by the phaseout. However, if your MAGI exceeds $292,150, your credit or exclusion will be gradually reduced until it reaches zero.
Non-Refundable Nature: Unlike some other tax credits, the Adoption Tax Credit is non-refundable. This means that the credit is limited to the amount of taxes you owe for the tax year 2023. However, any excess credit can be carried forward for up to five years, providing future tax relief.
Qualified Expenses: Eligible adoption-related expenses that can be claimed for the credit include reasonable and necessary adoption fees, court costs, legal fees, and adoption-related travel expenses such as meals and lodging. Be sure to keep detailed records of these expenses for documentation purposes.
Claiming the Adoption Tax Credit
To claim the Adoption Tax Credit, you’ll need to include Form 8839 with your tax return. This form will require you to provide information about the adoption, including the child’s name, the adoption’s type (domestic, international, etc.), and the expenses incurred.
To learn more about the adoption credit, trust CEO and Founder Lakeesha V. Browne, CPA to help. Send your questions here or schedule a consultation today!
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Works Cited:
IRS.gov. “Adoptive Parents: Don’t Forget About the Adoption Tax Credit.” 3 April 2024. https://www.irs.gov/newsroom/adoptive-parents-dont-forget-about-the-adoption-tax-credit.
IRS.gov. “Publication 505 (2024), Tax Withholding and Estimated Tax.” https://www.irs.gov/publications/p505.
