I started an adoption in 2019 and finalized it in 2020. I have nearly $7000 in adoption expenses, and I have entered them in. However, when I proceed, TurboTax says, "It turns out you don't qualify for this credit. ... For next year, you have a $6,996 carryover."
I think what it means to say is that I do not have any tax liability, so that the credit cannot be used this year. However, it does not say that clearly enough. It instead says that I do not qualify, but gives no explanation as to why. As far as I can tell from reading the literature, I do indeed qualify. At the same time, my Tax Summary says that my Total Tax is $0, which I believe means that I do not have any tax liability against which to apply the adoption credit. Is that correct?
The credit is non-refundable, meaning that if you owe no tax because of other deductions and credits, the adoption credit can't be used to increase your refund. It can be carried forward and applied to your tax in the future. It sounds like the Turbotax messaging is not clear on why the credit is not useable this year. (Sometimes the main screen is not helpful but there is a small blue link that says something like "why is this" or "explain more" that would explain this is a non-refundable credit.)
Yes, that's correct. The Adoption credit is a nonrefundable tax credit. This is a dollar-for-dollar reduction in the amount of federal taxes owed (tax liability) for the year. You won't get a refund if the tax credit is more than your total tax owed for the year. However, any credit in excess of your tax liability may be carried forward for up to five years.
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