Is there a problem with the child adoption credit carryover on turbo tax?

[emilygullett]

My line 24 on my tax return shows a tax amount of almost $4000, but my adoption credit carryover, which is almost $15,000, isn't being applied. I believe we can use the carryover amount to lower our tax from $4000 to zero, but turbo tax keeps telling me we don't qualify.  What's wrong?

[ShirlynW]

The tax benefits are 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.
• There is an exclusion from income for an approved employer-provided adoption assistance program.

Who qualifies for the credit?

Usually, the credit is permitted whether the adoption is domestic or foreign. However, the timing rules for claiming the credit for qualified adoption expenses are different, depending on the kind of adoption.

• A domestic adoption is the adoption of a U.S. child (an eligible child who is a citizen or resident of the U.S. or its possessions before the adoption begins). Qualified adoption expenses paid before the year the adoption becomes final are permitted as a credit for the tax year following the year of payment (even if the adoption is not finalized and even if an eligible child was never identified)
• A foreign adoption is the adoption of an eligible child who is not yet a citizen or resident of the U.S. or its possessions before the adoption effort begins. Qualified adoption expenses paid before and during the year are permitted as a credit for the year when it becomes final.
• You have a carryforward of an adoption credit from 2021.
• You may receive less than the full amount if some of your adoption expenses are covered by an employer plan or your modified adjusted gross income (MAGI) is over $223,410 (and is phased out at $263,410) for 2022.

What adoption expenses qualify for the credit?

Expenses which qualify for the adoption credit include:

• Adoption fees
• Attorney fees
• Home studies by an authorized placement agency
• Court costs
• Travel expenses including meals and lodging while away from home.
• Visas and re-adoption expenses for a foreign child

To claim the adoption tax credit in TurboTax

Regarding the adoption tax credit, keep in mind:

• If you have adopted the child of your spouse, you cannot claim this credit.
• The credit usually is not available if you are Married Filing Separately
• Keep receipts for all qualified adoption expenses with your tax records.

From <https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-credits-deductions/claim-adoption-cr...>

[theanderfam1]

why is turbo tax saying I get over 20,000 in adoption credit from previous carryovers  (13517, then 7951)

Isn't the limit around 14,000

[DaveF1006]

To clarify, did you adopt more than one child?

[theanderfam]

Just one, but I figured out my mistake.  Turbo tax asks you to but carryover from previous years which I did (since it lost out several previous years),  but really I should only write on the last years as that is the only remaining carryover 

[taxquestions1234]

I agree! I'm wondering the same thing. We have had failed adoptions every year for the past 3 years, and ever year I enter our expenses, and we've never "qualified" for the tax credit! We always have to pay in each year (many thousands of dollars!) and TurboTax keeps telling us that we don't qualify for the adoption credit. Is something wrong with how it's being calculated?? I was actually thinking of trying different software this year because I feel like this is costing us a lot of money, as I really think there's an error in the software. Please let me know if there's a way around this! Thank you!

[MonikaK1]

If you entered your qualified adoption expenses, but don't see a credit on your return, check these limitations to confirm whether you qualify for the Adoption Credit this year:

Income limit: in 2023, families with a modified adjusted gross income below $239,230 with qualified expenses can claim full credit. Those with incomes from $239,230 to $279,230 can claim partial credit, and those with incomes above $279,230 cannot claim the credit.

Nonrefundable Credit limit: The adoption tax credit is non-refundable. This means it can be used to reduce a tax bill but won't result in a refund, even when the amount of credit is greater than the tax bill. 

Limit per eligible child: $15,950.

However, a taxpayer can carry their leftover credit forward and apply it to future tax returns for up to five years.

To enter the expenses in TurboTax Online:

1. Open or continue your return if it isn't already open.
2. Search for adoption credit and select the Jump to link, or find it in the list under Deductions and Credits, You and Your Family.
3. On the "Did you pay any adoption expenses in 2023 or earlier?" or the "Credit for Adoption Expenses" screen, read the information and, if you qualify, answer Yes. This includes carryovers from prior years.
4. Continue answering questions until the section is completed.

The adoption tax benefits provide an incentive for individuals or families to adopt an eligible child. The 2023 maximum dollar amount per eligible child is $15,950. If your expenses were spread over multiple years, you might be able to spread the credit over multiple tax returns. 

You shouldn't have to provide info that doesn't exist, such as the child's date of birth or SSN in the case of failed adoptions. TurboTax developers have worked on this situation in the program. You should be able to claim the adoption credit without being required to list a specific child's name and other information on the form in the case of a failed adoption attempt.  This matches the IRS instructions saying that those fields can be left blank if you do not have the information. See this thread for another discussion of the issue. There may still be a flag on the screen asking for missing information, but you can proceed with claiming the credit without entering the info being flagged. Click Continue a second time and the program should proceed.

From IRS Tax Topic 607:

A domestic adoption is the adoption of a U.S. child (an eligible child who is a citizen or resident of the U.S. or its territories before the adoption effort begins). Qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized and even if an eligible child was never identified).

[taxquestions1234]

Yes, I have checked the limitations many times. Our annual income is under 100k and we have qualifying expenses. Everything applies for our situation, but TT won't give us the credit. It always says we don't qualify "but don't worry" because you can carry it forward. I've been carrying it forward for years and have never gotten a dime from the credit.

[MonikaK1]

If you meet the income limitations and you entered qualifying expenses, the adoption credit should be allowable unless:

• your return already showed a refund, or
• you have already carried the expenses forward for five years. 

If the entire credit is not used in the current tax year, any remaining amount can be carried forward for up to five years. 

Please see this TurboTax tips article for more information.

[taxquestions1234]

Great, thanks! Since I believe that I do qualify, and I haven't been getting any credit for several years, is there someone at TT that I can appeal to? Someone who could look at the back end and see if the software has a glitch or something?

[MonikaK1]

You're welcome. You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions for TurboTax Online users: 

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up that says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see what you are seeing and we can determine what is going on in your return and provide you with a resolution.

Here are the instructions for TurboTax Desktop users:

1. From the black bar at the top of your screen, select Online
2. Click Send Tax File to Agent
3. Click Send on the message that pops up
4. TurboTax will create a "sanitized" copy of your return information with no personal info
5. Post the 7-digit token number here in this thread.

[taxquestions1234]

Fantastic! Thank you so much! My code is 1193939.

I appreciate your help!

[MonikaK1]

Thank you for providing the file. I see now why you didn't get the credit.

You can only apply nonrefundable credits including the Adoption Credit against regular income tax. Your regular income tax was eliminated by your child tax credit and foreign tax credit. See Lines 16 through 22 of your Form 1040.

The only tax you had left to pay was self-employment tax. Self-employment tax can only be reduced by payments and refundable credits, the total of which appears on Line 33 of your Form 1040.

In order to use your adoption credits, you will need to have some income tax against which to apply them.

More details about the calculation appear in the Instructions for Form 8339.

[taxquestions1234]

Thank you very much for taking the time to look into it for me, and for explaining why it doesn't work for us!

That's frustrating that self-employed people can't take advantage of the adoption tax credit.

Thank you for your help!

[MonikaK1]

You are welcome!