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Level 2
posted Sep 25, 2024 9:21:01 AM

First time dealing with Adoption Credit...Help pls

My wife and I are looking to adopt a domestic US-born child. We haven’t identified a child yet, but we are hopefully we will identify and adopt a child soon. So far, we have incurred adoption related expenses in 2023 and 2024.

We started the adoption journey in Jan 2023. We have incurred approx. $8K of adoption expenses in 2023 and approx. $4K of adoption related expense so far in 2024.

Question:

  • can we deduct the expenses and/or receive the adoption credit for 2023?
  • can we deduct the expenses and/or receive the adoption credit for 2024?
  • Could the credit be taken away by the IRS if we never identify a child or finalize adoption?
  • Looking at my tax situation for 2023, I expect to receive a small refund for 2023. Will I receive the adoption credit as a refund for 2023?
  • What other things do I need to know about adoption credit?

Thanks!

0 1 7191
1 Replies
Employee Tax Expert
Sep 25, 2024 9:44:51 AM

Congratulations!  The adoption credit is a non-refundable credit.  The maximum credit for 2023 is 15,950 and phases out if your income gets too high.  A non-refundable credit means that it can be used to reduce your tax liability, but once that is at zero, you don’t get the rest as a refund.  You can carry it over to the next year for up to five years.  

  • The expenses for a domestic adoption paid before the year the adoption becomes final are allowable as a credit for the year after payment even if it never becomes final.
  • Yes, you can take the credit for multiple years.  The timing will depend on if the adoption is finalized in 2024.
  • A domestic adoption does not have to be finalized in order for the expenses to be counted as a credit. 
  • It’s a non-refundable credit.  Please make sure the expenses you claim towards the credit are qualified expenses.

Please see this handy IRS topic overview for some great information.

 

Hope this helps!

Cindy