Choosing to adopt a child can bring your family incredible joy, but it can also be expensive! In order to help balance those costs, the IRS allows adoptive parents to claim a tax credit for qualified expenses relating to adoption.
Qualified Adoption Expenses
Different adoption processes incur different costs, and not all of those costs necessarily qualify for the adoption tax credit. In order to be eligible for the credit, the costs must be what the IRS calls a “qualified adoption expense.” These include:
- Adoption fees that are deemed to be both reasonable and necessary
- Court costs and necessary legal fees
- Cost of travel, including meals, while away from home to facilitate the adoption process
While these are some of the most typical costs related to adoption, this is not an exhaustive list. It’s always worth your while to check with your local tax team to see if a particular expense is eligible even if it’s not specified above!
Credit and Income Limitations
As with most tax credits, there are some rules to keep in mind with the adoption tax credit. The total credit you can claim (as of 2017) is $13,570. This is a non-refundable credit, meaning that you can’t claim a deduction for adoption costs in excess of your tax liability. However, if you are eligible to claim more than your tax liability in a given year, you can carry over any excess and claim it in the future for up to five years.
In addition to the credit limitations, there are also some income limitations to keep in mind, as well. If your modified adjusted gross income is over $200,000, you should be aware that any tax credit you claim will likely be reduced or eliminated based on your income level.
For adoption-related tax assistance in Raleigh, contact the team at Taxation Solutions, Inc. Our experts will be happy to help you navigate the tax implications of adoption so that you and your growing family can make the most of the tax credits available. Call us today!