Adopting? You Might Benefit from This Special Tax Credit

Are you adopting? You just might benefit from this special credit.  Here is some information you should know. What exactly is the adoption tax credit?

The adoption tax credit is a nonrefundable tax credit meant to provide relief for the qualified costs you pay when adopting a child.

The adoption process can be very costly. Fortunately, the adoption tax credit can help to offset some of those expenses.

Here are some facts to help you understand the credit:

• The maximum adoption credit taxpayers can claim on their 2020 tax return is $14,300 per eligible child and $14,440 in 2021.
• There are income limits that could affect the amount of the credit
• Taxpayers should complete IRS Form 8839, Qualified Adoption Expenses. They use this form to figure how much credit they can claim on their tax return.
• An eligible child must be younger than 18. If the adopted person is older, they must be physically or mentally unable to take care of themselves.
• This credit is non-refundable. This means the amount of the credit is limited to the taxpayer’s taxes due for 2020. Any credit leftover from their owed 2020 taxes can be carried forward for up to five years.

Qualified expenses include:

• Reasonable and necessary adoption fees.
• Court costs and legal fees.
• Adoption-related travel expenses like meals and lodging.
• Other expenses directly related to the legal adoption of an eligible child.
• If the taxpayer and someone other than a spouse each paid qualified adoption expenses to adopt the same child, the $14,300 credit must be divided between the two of them.
• Expenses may also qualify even if the taxpayer pays them before an eligible child is identified. For example, some future adoptive parents pay for a home study at the beginning of the adoption process. These parents can claim the fees as qualified adoption expenses.

Qualified adoption expenses don’t include costs paid by a taxpayer to adopt their spouse’s child.

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