Adoptive families who incurred expenses for a domestic adoption OR finalized an international adoption in 2023 should familiarize themselves with the Federal Adoption Tax Credit, which offers financial assistance to offset adoption-related expenses. Here's what you need to know:
Overview:
- The Federal Adoption Tax Credit for 2023 can reach up to $15,590 per child.
- This credit is non-refundable, meaning it's applicable only if you have federal income tax liability.
- Adoption-related tax benefits include a tax credit for qualified adoption expenses paid and an income exclusion for employer-provided adoption assistance.
Eligibility:
- The child must be under the age of 18 at the time of adoption, or if turning 18 during the year of finalization, refer to specific instructions, linked below.
- Children adopted who are physically or mentally unable to care for themselves are also eligible.
Income Limits:
- Modified adjusted gross income determines the amount parents can claim.
- Full credit can be claimed for incomes up to $239,231.
- Partial credit applies for incomes between $239,231 and $279,230.
- Incomes above $279,230 are not eligible for the credit.
Qualified Adoption Expenses:
- These expenses must be reasonable and necessary to complete a legal adoption.
- Examples include adoption agency fees, attorney fees, court costs, travel expenses, and more.
- You cannot claim expenses reimbursed by others or amounts exceeding what you paid.
- The maximum claimable amount per child is $15,950.
Employer-Provided Adoption Benefits:
- Benefits received from employers may be excluded from income.
- Use Form 8839 to determine eligibility and amounts.
When to Claim the Credit or Exclusion:
- For domestic adoptions, expenses can be claimed in the year following payment, even if the adoption is not yet finalized.
- For international adoptions, the credit cannot be claimed until the adoption is finalized.
- Special circumstances apply for children with special needs.
Documentation:
- Keep all receipts related to adoption, including agency fees, home study expenses, legal fees, travel costs, and more.
Remember, seeking assistance from a qualified tax preparer is recommended to ensure proper claiming of the 2023 Federal Adoption Tax Credit. For more detailed information and instructions, refer to Form 8839 and consult a tax professional as needed.