Child adoption can be rewarding in many personal ways, but it can also benefit you financially. Due to Congress extending the Federal Adoption Tax Credit permanently, you can offset adoption expenses.
Here are key details on how adopting a child under the age of 18 can entitle you to tax credit:
2016 Adoption Tax Credit
The amount of your tax credit for adopting a child in 2016 is $13,460 if your modified adjusted gross income is $201,920 or less. Instead of a deduction that reduces your taxable income, it’s actually a reimbursement for qualified adoption expenses. For a modified adjusted gross income level between $201,920 and $241,920 your tax credit will be lower, but will not be available for a modified adjusted gross income of $241,920 or higher.
This adoption tax credit is expected to increase each year to account for the rising cost of living. Fluctuations on upper and lower income limits will also be affected by cost of living. As soon as the 2017 amount becomes available, we will publish an update. Also, the credit is per child so if you adopt twins, for 2015 you would receive $26,920.
To learn about the 2017 Adoption Tax Credit, check out our new post: Adoption Tax Credit Changes For 2017
Qualified Adoption Expenses
- court costs and attorney fees
- adoption agency fees
- travel expenses including lodging and meals
- other domestic or international expenses related to child adoption
When you are adopting a child with special needs, it’s possible to receive the full tax credit even if expenses are lower.
How to Proceed
For a child born in the U.S. or who is a resident alien, you can file the claim a year after you incur the expenses. If adoption expenses continue the year after adoption, you can take a further tax credit in that year. An international adoption must first be finalized to take the tax credit.
If you plan on adopting a child in 2016, contact your tax professional to find out how the tax credit can be applied to you. Ask for form 8839 to claim the tax credit. The adoption does not necessarily need to be successful to take the tax credit if expenses are incurred.
Please note that we are adoption professionals and can discuss our program, but any specific information about the tax credit (like whether or not you qualify) should be directed to a tax attorney or accountant.
Related Post: Federal Adoption Tax Credit