Adoption Tax Credit: A Boost for Families Welcoming a New Member
Bringing a child into your home through adoption is an incredible journey filled with love, joy, and new beginnings. However, the financial aspects of adoption can be overwhelming for many families. To help ease the burden, the United States government offers an Adoption Tax Credit as a way to support families in their efforts to provide loving homes for children in need.
What is the Adoption Tax Credit?
The Adoption Tax Credit is a non-refundable tax credit available to eligible adoptive parents. It helps offset some of the expenses associated with adopting a child, such as adoption fees, court costs, travel expenses, and attorney fees. This credit allows families to recoup some of their adoption-related expenses by reducing their federal income taxes owed.
Who Is Eligible?
To qualify for the Adoption Tax Credit, there are certain eligibility criteria that must be met:
1. Child Qualifications: The adopted child must be under 18 years old or have special needs.
2. Qualified Expenses: Only reasonable and necessary adoption-related expenses are considered eligible.
3. Modified Adjusted Gross Income (MAGI): There is an income limit to claim this tax credit; however, it is subject to change each year.
4. Timing: The credit can only be claimed in the year that an adoption becomes final.
How Much Can Be Claimed?
The maximum amount of the Adoption Tax Credit changes annually based on inflation adjustments set by the Internal Revenue Service (IRS). For tax year 2021, adoptive parents may claim up to $14,440 per child as a non-refundable tax credit.
It’s important to note that this credit begins phasing out when modified adjusted gross income (MAGI) exceeds $216,660 and completely phases out at $256,660 or more.
Claiming the Adoption Tax Credit
To claim this valuable tax credit:
1. Complete the Required Adoption-Related Documentation: This includes Form 8839, Qualified Adoption Expenses, and attaching it to your federal tax return.
2. Keep Detailed Records: Maintain thorough documentation of all adoption-related expenses incurred throughout the process.
If you have adopted a child with special needs, even if you had little or no qualified expenses, you may still be eligible for the full tax credit.
Carrying Forward Unused Credits
If your adoption expenses exceed the maximum amount of the credit allowed in a given year, don’t worry! The Adoption Tax Credit is also “carry-forward” friendly. Any unused credits can be carried forward for up to five consecutive years until they are fully utilized.
State-Specific Adoption Benefits
In addition to the federal Adoption Tax Credit, many states offer their own tax benefits and financial assistance programs for adoptive families. These additional resources can further alleviate financial burdens and help families provide stable homes for children in need.
Final Thoughts
Adopting a child is an act of love that transforms lives forever. The Adoption Tax Credit serves as an invaluable tool to support adoptive families by providing financial relief during this life-changing journey. By taking advantage of this tax credit and exploring other available resources at both state and local levels, more families can fulfill their dreams of welcoming a new member into their homes without undue financial stress.