Gulf Coast Adoptions explains what you need to know about the adoption tax credit.
What is the adoption tax credit for 2024?
The adoption tax credit has been raised to $16,810 for 2024. The amount you can claim may vary depending on the circumstances and expenses.
What is the Adoption Tax Credit?
The adoption tax credit is a reduction in taxes due for someone who has qualifying adoption expenses. The credit may reduce the amount the person owes in taxes because of expenses incurred in the adoption process.
How the Tax Credit for Adoption Works
Costs you may incur in the adoption process include the following:
- Fees for adoption
- Home study costs
- Court costs
- Attorney fees
- Travel expenses
- Other direct expenses
The adoption tax credit offsets these amounts by lowering your taxes due up to the maximum amount.
Example of the adoption tax credit
For example, say you incur $3,500 in adoption expenses. Your total amount of tax before the credit is $15,000. The expenses are deducted from your total tax amount, reducing what you owe to $11,500.
Is the adoption tax credit refundable?
No. The adoption tax credit can simply reduce your tax liability up to $0. Even if you incur additional expenses beyond your total tax liability, the adoption tax credit won’t result in a refund.
Credit vs. income exclusion
In addition to the tax credit, you may also qualify for an income tax exclusion for employer-provided adoption assistance. An exclusion means the funds are not counted as income to determine the amount of tax that you owe. If your employer provides adoption assistance, you may exclude it as income in addition to claiming the tax credit.
You must apply for the exclusion before applying for the credit. You can use both an exclusion and a credit, but you can’t apply the same expense to both an exclusion and a credit.
The adoption income exclusion is subject to maximums and income limits.
Eligibility Criteria for the Adoption Tax Credit
To be eligible for the adoption tax credit, you must:
- Incur expenses in the adoption process
- Have a tax obligation that can be reduced
- Meet the income requirements
Can you get the adoption tax credit for adopting your stepchild?
No. Adopting the child of your spouse does not qualify for the adoption tax credit. It may apply to domestic partner or second-parent adoptions in some states.
Are there income limits to claim the adoption tax credit?
Yes. The adoption tax credit income phase out begins at $252,120. Up to that amount, the entire credit can be claimed. With an adjusted gross income from $252,150 to $292,150, you may claim a reduced amount. Above the maximum amount, the credit does not apply.
How To Claim the Adoption Tax Credit
To claim the adoption tax credit, complete IRS Form 8839 – Qualified Adoption Expenses. Use the form to determine the amount of the credit and submit it with your taxes. Save receipts as you incur expenses.
What if the adoption is unsuccessful? Can you receive the adoption tax credit?
Yes. You may claim the adoption tax credit even if the adoption does not take place. Qualified expenses must be combined with a subsequent attempt.
What if a child has not been identified yet? Does the adoption tax credit apply?
Yes. The adoption tax credit applies even if a child has not been identified yet. A common scenario is a preliminary home study.
Does the adoption tax credit carry over from year to year?
If you don’t use the maximum adoption tax credit amount in a single year, you may carry over unused portions for up to five years.
Does the adoption tax credit apply to international adoptions?
Yes. The adoption tax credit may be used for international adoption.
Does the adoption tax credit apply to foster care adoption?
Yes. You may use the adoption tax credit for a foster care adoption.
What is the special needs adoption tax credit?
When a child meets the criteria of special needs, adopting parents may claim the maximum adoption tax credit in the year the adoption is finalized, reduced by any amounts claimed in previous years.
Being special needs for the purposes of the tax credit is different from the criteria for special needs in other contexts. To be special needs means the following:
- The child shouldn’t be returned to the parent
- The child is a U.S. citizen or resident
- Adoption would be unlikely without assistance
Contact an Experienced Adoption Lawyer Today
To talk to an experienced adoption lawyer about the adoption tax credit, contact Gulf Coast Adoptions at 850-999-7977.