Adoption Tax Credit
Cost is a common concern for adoptive families and the tax credit for adoption is a way to help families out financially that are providing loving, permanent homes to children.
The adoption tax credit first became available in the U.S. in 1997 after the Small Business and Job Protection Act of 1996 was passed as a result of advocates looking to make adoption more affordable for families.
Get in touch with us today to learn more about the adoption tax credit and what it means for you.
What is the Adoption Tax Credit?
The adoption tax credit allows families who have adopted to be eligible for reimbursement of adoption expenses related to the process. Foster care adoption is included in the tax credit.
Expenses that qualify as adoption-related expenses include:
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Adoption fees
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Court costs and legal fees
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Adoption-related travel expenses like meals and lodging
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Other expenses directly related to the legal adoption of an eligible child
In 1997, the credit was set at a maximum of $5,000 for qualifying families and expenses and has expanded through legislation and inflation since.
The tax credit for adoption does come with an income limitation as well. It’s based on your modified adjusted gross income (MAGI) and if the MAGI falls within a certain amount for that tax year, your credit may be reduced or eliminated
What Is the Federal Adoption Credit for 2024?
For adoption finalized in 2023, meaning your tax return is claimed in 2024, the maximum amount a family can receive for the adoption tax credit in 2024 is $15,950 per child. That amount will change yearly based on inflation and eligibility restrictions.
Learn more about the adoption tax credit and the services we offer to help make adoption more affordable for you by reaching out to us online.
Is There an Iowa Adoption Tax Credit
In addition to the federal adoption tax credit, Iowa has its own adoption tax credit.
The adoption tax credit in Iowa for individual income tax is equal to the first $5,000 of out-of-pocket expenses related to an adoption per each child placed.
That number can change from year to year as the state has looked into raising the tax credit amount.
Who Qualifies for the Adoption Tax Credit?
Anyone who adopted a child, unless it’s the child of their spouse, and paid adoption-related expenses out of pocket qualifies for the tax credit for adoption.
How to Claim the Adoption Tax Credit
In order to claim your adoption tax credit, you must file Form 8839 with the Internal Revenue Service.
Form 8839 is used to figure out the amount of your tax credit for adoption as well as any employer-provided adoption benefits that you can exclude from your income too.
How Many Years Can You Claim the Adoption Tax Credit?
The adoption tax credit is not refundable. It can reduce your tax bill but won’t result in a refund, even if the amount of credit exceeds your tax bill. It’s limited to your tax liability for the year up to the credit allowed for that year.
But if there’s any credit over your tax liability, it can be carried forward and claimed for up to five years.
Learn more about the adoption tax credit at a federal and state level by contacting us online.
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