There was some concern as the recently passed tax bills made its way through Congress that the adoption tax credit would be discontinued. Fortunately, for parents who are thinking about adoption, legislators preserved the credit.
While we know that the adoption tax credit is still available to for families, there remains a great deal of confusion surrounding it. Below are elements of the tax credit that adoptive parents should be aware of:
- Overview of the credit: The adoption tax credit is a nonrefundable credit. This means it cannot reduce a taxpayer’s tax burden below zero. However, if there are unused tax credits, they can be carried over to next year. It is important to note that there is a five-year limit for adoptive parents to fully use the credit.
- Eligibility: People may be able to take advantage of the adoption tax credit when adopting a child who is under the age of 18, has special needs or is unable to care for themselves.
- Maximum credit: The most that adoptive parents can receive for 2017 is $13,570 per child.
- Income limits:This tax credit will phase out based on your modified adjusted gross income. When filing this year, the phase out range is between $201,920 and $241,920. If your modified adjusted gross income exceeds $241,920, you cannot use the adoption tax credit.
- Eligible expenses: There are a number of expenses that may be eligible for the credit. These include adoption fees, legal expenses and travel costs. It is important to maintain proper documentation of all adoption-related expenses in case the IRS audits you.
While adopting a child brings unquantifiable joy to a family’s life, the costs of navigating the complex adoption laws in Alabama can make the process challenging for many families. Fortunately, the adoption tax credit can help ease those financial burdens for adoptive parents.