Tax laws are constantly evolving, and one area that's seen recent changes is the Adoption Tax Credit. As we look ahead to the tax year 2024, essential updates could affect individuals seeking to claim the adoption tax credit. We are family law attorneys, but this directly impacts our adoption clients, and we want to give you enough information to talk to your tax professional to find out if you can use the credit.
Enhanced Maximum Credit for Adoptions
One significant change to the Adoption Tax Credit for 2024 is the increase in the maximum credit available. In the upcoming tax year, the full credit for adoptions is set at the amount of qualified adoption expenses, now capped at $16,810. This is a notable rise from the previous limit of $15,950 in 2023.
Understanding Qualified Adoption Expenses
Before discussing the increased maximum credit, it's essential to understand what qualifies as adoption expenses. These are the reasonable and necessary costs directly associated with legally adopting an eligible child. They may include adoption fees, court costs, attorney fees, and travel expenses, among others. Maintaining thorough documentation of these expenses is crucial for you to prove your expenses to the IRS if needed.
Income Limits:
There are income limitations on the Adoption Tax Credit. As of 2024, the credit starts to phase out for taxpayers with modified adjusted gross incomes (MAGI) above $214,520 and is fully phased out for those with MAGI exceeding $254,520.
Eligible Children: The adoption must involve a child who is under the age of 18 or someone who is physically or mentally incapable of self-care.
Timing of the Credit: Taxpayers can claim the Adoption Tax Credit in the year the adoption becomes final. If the adoption still needs to be finalized, they may be eligible to claim the credit in the following tax year.
Non-refundable Credit: It's important to understand that the Adoption Tax Credit is non refundable. While it can reduce your tax liability to zero, any excess credit beyond your tax liability will not be refunded.
In Conclusion
As we prepare for the tax year 2024, those considering or in the adoption process should be mindful of the changes to the Adoption Tax Credit. The increased maximum credit of $16,810 for qualified adoption expenses offers potential financial relief for families expanding through adoption. However, it's crucial to understand and adhere to the general rules and requirements for claiming this credit to ensure a smooth and compliant tax filing process. Always seek advice from a tax professional tailored to your specific situation.
Kimberly (Kim) Surratt is an experienced surrogacy, assisted reproduction law, and adoption attorney. She has lobbied many adoption statutes in the State of Nevada and is working on pursuing a rewrite of the entire adoption chapter in the next session. She will do adoption work in the State of Nevada and can help you realize your dream of being a parent.