Adoption Tax Credits: Maximizing Financial Support for Your Family

Understanding Tax Credits for Adoption: What Hopeful Parents Need to Know

Adopting a child is one of the most meaningful and life-changing decisions you can make. However, it often comes with significant financial expenses that can feel overwhelming. The good news? The U.S. federal government offers tax benefits, including the adoption tax credit, to help alleviate some of the financial burden for adoptive families. I want to make sure you’re fully informed about this valuable resource as you navigate your adoption journey.

What Is the Adoption Tax Credit?

The adoption tax credit is a federal tax benefit that allows eligible adoptive parents to claim qualified adoption expenses on their taxes. These expenses may include:

• Adoption agency fees

• Court costs and attorney fees

• Travel expenses related to the adoption

• Other costs directly tied to the adoption process

For 2024, the maximum adoption tax credit is $15,950 per child (subject to income limitations). This credit can be used to reduce your federal tax liability and is a crucial resource for making adoption more affordable.

Who Qualifies for the Adoption Tax Credit?

To qualify for the adoption tax credit, you must:

1. Be adopting a child under the age of 18 or an individual who cannot care for themselves due to physical or mental disabilities.

2. Have incurred eligible adoption expenses. These may vary depending on whether you’re pursuing a domestic, international, or foster care adoption.

3. Meet income requirements. For 2024, the full credit is available to families with a modified adjusted gross income (MAGI) of $239,230 or less, with the credit phasing out for higher incomes.

How Does the Adoption Tax Credit Work?

The credit is non-refundable, which means it can only reduce your tax liability to zero. However, if you cannot use the entire credit in one year, you can carry it forward for up to five additional tax years.

Here’s an example:

• If your federal tax liability for the year is $5,000 and you qualify for the full $15,950 credit, you’ll reduce your tax bill to $0 and carry the remaining $10,950 forward to future years.

When Can You Claim the Credit?

The timing of when you can claim the credit depends on the type of adoption:

• Domestic Adoptions: You can claim qualified adoption expenses in the year after they are paid, even if the adoption is not yet finalized.

• International Adoptions: You must wait until the adoption is finalized to claim any expenses.

• Foster Care Adoptions: If you adopt a child with special needs through foster care, you may be eligible for the full credit, even if your qualified expenses are less than the maximum credit amount.

What About State Tax Benefits?

In addition to the federal tax credit, some states offer their own adoption tax credits or deductions. These vary by state, so it’s essential to research what’s available in your area or consult a tax professional.

My state (Ohio) used to offer a $10,000 adoption tax credit but switched it in 2023 to a grant. It's definitely worth checking out if your state offers anything!

How to Claim the Adoption Tax Credit

To claim the adoption tax credit, you’ll need to:

1. Complete Form 8839: Qualified Adoption Expenses when filing your federal tax return.

2. Provide documentation of your adoption expenses, such as receipts and invoices.

3. Do what we did - Work with a tax professional if you’re unsure about any part of the process to ensure you’re maximizing your benefits.

Tips for Making the Most of the Adoption Tax Credit

• Keep Detailed Records: Save all receipts, invoices, and documents related to your adoption expenses. Proper documentation is essential in case of an audit.

• Plan Ahead: If you anticipate qualifying for the credit, consider how it fits into your overall financial plan for the year.

• Consult a Tax Professional: Adoption-related tax rules can be complex, so getting expert advice can help you navigate the process smoothly.

Final Thoughts

Adoption is an incredible journey filled with both challenges and rewards. The adoption tax credit is a valuable resource that can ease some of the financial strain and help make your dream of growing your family a reality. If you’re considering adoption or are in the process now, be sure to explore all the financial resources available to you.

If you have questions about using Facebook to match for adoption or need guidance on other aspects of your journey, don’t hesitate to reach out (thehelpfulhap@gmail.com).