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ADOPTION TAX CREDIT EXPLAINED

Discover eligibility, benefits, and how to claim it.

adopted family with children

Embarking on the journey of adoption is a remarkable and heartfelt endeavor. Yet, the financial aspects of adoption can be daunting. To provide relief to adoptive families, the adoption tax credit is a valuable resource. This article is your guide to understanding how this credit can make adoption more accessible for families.

The Adoption Tax Credit Explained

The adoption tax credit is a federal tax credit designed to ease the financial burden of adoption for eligible adoptive families. It's important to comprehend its core elements: This credit can significantly reduce your federal income tax liability, potentially providing substantial financial assistance.

Eligibility and Benefits

To make the most of the adoption tax credit, you must meet certain eligibility criteria. Generally, this credit is available for:

    • Domestic and international adoptions
    • Adoption of a child with special needs
    • Qualified adoption expenses, including adoption fees, court costs, attorney fees, and travel expenses related to the adoption

The adoption tax credit may cover a significant portion of your qualifying expenses, making adoption a more attainable dream for many families.

Limitations and Restrictions

While the adoption tax credit offers substantial benefits, there are limitations and restrictions to consider: 

    • Income Limitations: The credit's full amount is available to those with a modified adjusted gross income below a certain threshold. Above this threshold, the credit gradually phases out.
    • Timing: The credit is generally non-refundable, which means it can reduce your tax liability to zero but won't provide a refund beyond that.
    • Carry forward: Any unused credit can be carried forward for up to five years, potentially reducing your tax liability in future years.

How to Claim the Adoption Tax Credit

Claiming the adoption tax credit involves proper documentation and IRS forms, including Form 8839. It's advisable to seek professional guidance or use tax preparation software to ensure accurate filing.

Common Questions and Answers

Can the adoption tax credit be carried forward if not fully used in one tax year?
Yes, any unused adoption tax credit can be carried forward for up to five years.

Are there state-specific adoption tax credits or benefits?
Yes, many states offer additional adoption tax credits or benefits. Be sure to research your state's policies.

What adoption expenses qualify for the tax credit?
Qualifying expenses typically include adoption fees, court costs, attorney fees, and travel expenses related to the adoption.

Can the adoption tax credit be used for international adoptions?
Yes, the adoption tax credit can be used for both domestic and international adoptions, provided all requirements are met.

How does the adoption tax credit interact with other adoption-related financial assistance programs?
The adoption tax credit can be used in conjunction with other financial assistance programs, but you should consult with a tax professional to ensure proper coordination.

Let Liberty Tax Help

If you're considering adoption or are already in the process, the adoption tax credit can make a significant difference in your journey. At Liberty Tax, we're here to guide you through the intricacies of the adoption tax credit. Contact us today to schedule an appointment or explore our resources.