Updated 2/6/20: Adoption Tax Credit adjusted numbers for 2020. The maximum amount allowed is set at $14,300 per child for 2020 (it was $14,080 in 2019). The tax credit starts to phase out for families with modified adjusted gross income in excess of $214,520, and is completely phased out for families with modified adjusted gross income of $254,520 or more.
With the tax filing season quickly approaching, the Internal Revenue Service recommends taxpayers take time now to determine if they are eligible for important tax credits. Many of our adoptive families will be applying for the Adoption Tax Credit. With that in mind, we have compiled some basic information about the 2019 adoption tax credit
Adoption Tax Credit 101
If you have done any research into adoption financing, you’ve probably heard about the Federal Adoption Tax Credit. But what exactly is this credit, and how does it work?
The Federal Adoption Tax Credit is a non-refundable tax credit that helps families offset the costs of qualifying adoption expenses. Families who paid qualifying adoption expenses in 2019, and owe taxes, may be eligible to benefit from this credit.
According to the IRS, “qualified adoption expenses” can include items like:
- Reasonable and necessary adoption fees
- Court costs and attorney fees
- Traveling expenses related to adoption
- Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child
If you’re not sure whether you are eligible to use the adoption tax credit or if you paid qualifying adoption expenses in 2019, a tax professional will be able to provide more information.
How Much is the 2019 Adoption Tax Credit?
The amount families are eligible to receive from the Federal Adoption Tax Credit depends on a number of factors and will vary based on their unique situation. However, the maximum amount available for the 2019 Federal Adoption Tax Credit is up to $14,300.
The Adoption Tax Credit limit is based on modified adjusted gross income (MAGI) and is recalculated each year based on current cost of living. Income affects how much of the credit parents can claim. For the 2019 Adoption Tax Credit, families with a MAGI below $211,160 can claim full credit. Those with incomes from $211,160 to $251,160 can claim partial credit, and those with incomes above $251,160 cannot claim the credit. The tax credit starts to phase out for families with modified adjusted gross income in excess of $214,520, and is completely phased out for families with modified adjusted gross income of $254,520 or more.
Adoption and taxes can be complicated, and you will likely have questions about the tax benefits available in your specific situation. While we hope you find the information in this post helpful, keep in mind that Adoption Choices does not offer tax advice. Talk to a tax professional for more specific information about how the Adoption Tax Credit can benefit your family.
Claiming the Credit
To claim the credit, taxpayers will complete a 2019 version of IRS Form 8839 (available at irs.gov in early 2020) and submit it with their Form 1040 when they file their 2019 taxes. Most tax software will create this form for you. Before filing, taxpayers should review 2019 Form 8839 instructions (will also be available at www.irs.gov) very carefully to be sure that they apply for the credit correctly and to see if anything has changed. The instructions are needed to calculate how much of the credit will be used.
When claiming the adoption tax credit, you’ll want to be ready with documents such as:
- The final adoption decree
- A placement agreement from an authorized agency
- Court documents
- A state’s determination for special-needs children, if applicable
This is a lot of information, and you probably have more questions about the tax credit for adopting a child in your specific situation. Adoption Choices does not offer tax advice and recommends that you talk to your tax professional for specific information on how the Adoption Tax Credit can benefit your family.