Federal Adoption Tax Credit

The 2020 Federal Adoption Tax credit is $14,300.  This is a dollar for dollar reduction of your tax liability.  Bottom line the adoption tax credit can help with offsetting the cost of your adoption.

In the coming years the credit should increase slightly based on cost of living.

In order to fully understand and take advantage of the adoption tax credit we highly recommend you contact your tax professional.  Your tax professional can help you to determine the extent of the tax credit that is available to you.

 Highlights of the adoption tax credit for 2020:

• The maximum dollar for dollar credit in 2020 is $14,300
• The income range for reduced credit or exclusion is 214,520-$254,520 or more
• People who adopt children with special needs can claim the maximum credit regardless of their expenses

Eligible Children Include:

• any child age 17 or younger, or
• a child of any age who is a US citizen or resident alien and who is physically or mentally incapable of caring for himself or herself.
• The credit can be used per child, per adoption

Qualified Adoption Expenses are calculated by:

• Adding up all the expenses related to the adoption
• Subtracting any amounts reimbursed or paid for by your employer, government agency, or other organization.
• Adoption expenses include any and all costs directly relating to your adoption and that are reasonable and necessary for your adoption. Such as agency adoption fees, legal fees,birthmother living expenses, social service costs, court costs, and travel expenses.

Records to Keep

Keep the following documents to ensure you get any credit that is allowable:

• Receipts for qualified adoption expenses
• Final adoption decree, certificate or order of adoption, Home study Assessment completed by a licensed adoption agency
• Child placement agreements or court orders

Find out more about the adoption tax credit at www.IRS.gov

Federal Adoption Tax Credit- FAQ

Can the credit be carried forward if I don’t have enough tax liability the first year, Can I claim it?

Yes, taxpayers have a total of six years to use the credit—the year they first are eligible to claim it and the next five years.

Is there a limit to the number of credits I can claim if I adopted multiple children?

No. You can claim it for any adopted children (other than a step-child). You just use multiple copies of the form.

Can I claim the tax credit when adopting my grandchild?

Yes. The tax credit can be claimed when adopting a grandchild or relative. This excludes step children.

Can I claim the Federal Adoption Tax credit for a failed adoption?

Yes, if you had qualified adoption expenses. It is treated as a non-finalized adoption. So, if you had expenses for an adoption in 2015 but the adoption has failed, you claim them with your 2016 taxes, typically filed in early 2017. Always confirm with a tax professional.

When Can I Claim the Adoption Tax Credit?

You may claim the adoption tax credit in the year after you incurred the expenses. However, if you finalize the adoption in the same year you incurred the expenses, you may claim the adoption tax credit in that year. Furthermore, if you incur expenses in the year after the adoption is finalized, you may take the tax credit in the year you incurred the expenses. This can be confusing, so always check with a tax professional.

How do I apply?

You need to fill out a Form 8839 Qualified Adoption Expenses for the year of the adoption and include it with your Form 1040.

State Adoption Tax Credits

A number of states also offer an additional adoption tax credit to their residents. Therefore, if you live in a state that offers a state-level adoption tax credit (amounts vary by state), ask your tax professional if you may receive these credits as well.  Consequently, the State of Ohio does offer a state adoption tax credit.

Ohio Adoption Tax Credit

Q: Is the Ohio adoption tax credit separate from the federal adoption income tax credit?

A: Yes. In addition to and separate from the federal adoption income tax credit, the state allows Ohio residents a $10,000 Ohio income tax credit for a family that legally adopts a child.

Q: What if an Ohio family adopts two or three children?  Is the family eligible for twice or three times the state and federal tax credit?

A: Yes, an Ohio family is eligible for the $10,000 Ohio Adoption tax credit as well as the federal tax credit every time it adopts a child that meets the standards the law requires.

Note: The State of Ohio Adoption Tax Credit is limited to $10,000 per child adopted during the taxable year, and any unused amounts can be carried forward for up to two years.

Always contact the IRS or your tax adviser for further assistance and explanation.