Adopting a child is expensive, but there are ways to mitigate the cost. The IRS offers an adoption credit that can be applied to expenses accrued during adoption.
Expenses that qualify for the adoption tax credit include adoption fees, court costs, attorney fees, travel expenses and other reasonable expenses directly related to the legal adoption of a child.
The adoption tax credit is a great way to offset the costs of adoption, but there are a few things you should know before you start seeing dollar signs.
- The tax credit is nonrefundable. What that means is that if your tax credit exceeds the amount you owe on your taxes for the year, you won’t receive the remainder of the credit as a refund. However, you can carry the credit over to the next year. You can also continue to carry over excess credit for up to five years.
- You can only claim what the IRS calls “reasonable and necessary” qualifying expenses for your adoption tax credit. You can learn more about qualifying expenses that are considered reasonable and necessary on the official IRS page about adoption credit.
- Not all adoption tax credits are created equal. Your tax credit amount can change based on income, special needs and even where your adopted child is from. You should always track all your expenses during the process of adoption, but be aware that the specific rules and limits may change depending on your circumstances.
For the 2018 tax year, for example, if your modified adjusted gross income (MAGI) was equal to or more than $207,140, you will receive a reduced tax credit. If it’s more than $247,140, you won’t be eligible for the tax credit at all.
All that said, the federal adoption tax credit for 2018 tax year, for example, was $13,810 maximum. Remember, this is a tax credit, not a deduction, which means that your taxes will be reduced by the amount of qualifying expenses you spend on the adoption, up to your maximum credit amount.
Even if a planned adoption were to fail, the tax credit can still be claimed for qualifying expenses accrued for the attempted adoption. For more information about the adoption tax credit and how to file, check out this helpful list of facts from the IRS.
The Law Office of Tammi J. Driver does not provide tax or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or accounting advice. You should consult your own tax and accounting advisors.