What Is The Adoption Tax Credit?

The Adoption Tax Credit is a federal tax credit that can help offset some of the costs associated with adoption. The limit of the credit in 2024 is $16,810. Because adoption can be expensive, the credit will likely not offset all of the costs, but it can definitely be a big help.

What is the Adoption Tax Credit?

The Adoption Tax Credit is a credit toward costs associated with adoption. Qualifying costs include: adoption fees, court costs, traveling expenses, and other expenses associated with adoption.

To qualify, the child being adopted must be under age 18 or disabled. The child cannot be the child of the taxpayer’s spouse.

The limit of the credit in 2024 is $16,810 or unreimbursed adoption expenses, whichever is less. For example, if actual adoption expenses paid are $5,000, the credit will be limited to $5,000. This is a credit that reduces tax dollar-for-dollar. For an explanation of credits vs. deductions, see this previous post. The credit is non-refundable, meaning that it cannot result in a taxpayer getting a refund after their tax is reduced to $0. However, the credit can be carried forward for up to five years.

Income limit

Most lower to middle income taxpayers will qualify for the credit. However, there is an income limit for higher income taxpayers. In 2024, the limit to receive the full credit is a modified adjusted gross income (MAGI) below $252,150. The credit then phases-out and is completely unavailable for taxpayers with MAGI above $292,150.

When is the credit claimed?

The limit for the credit applies for the same adoption effort. If expenses for the same adoption are spread over multiple years, the taxpayer can’t claim the full credit twice – the limit applies to all expenses associated with that adoption.

The timing of when the credit can be claimed depends on the type of adoption:

• Domestic adoption. Expenses associated with a domestic adoption can be claimed the year after they are paid or in the year the adoption is finalized, whichever is sooner. Expenses can be claimed, even if the adoption is not successful and never finalized.

• International adoption. Expenses associated with an international adoption can only be claimed in the year the adoption is finalized.

Other considerations

There are several other tax benefits associated with adoption that we will not cover here. However, they include:

• How the adoption tax credit interacts with employer adoption benefits.

• Additional benefits available when adopting a child with special needs.

If you have any comments, questions, or ideas for future posts, please let me know

I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.