Adoption can be a wonderfully fantastic experience for expanding your family, but it does not always come cheap. Fortunately, there is a federal tax benefit that could provide some comfort.
The adoption tax credit is a nonrefundable tax credit meant to help families afford the eligible costs of adopting a child. This credit has been adjusted for inflation and increased to 2024. Furthermore, the IRS just announced an upward inflation adjustment for the adoption tax credit, as well as other important family tax advantages for 2025, which you will include in your tax returns filed in early 2026.
Understanding the Adoption Tax Credit
Gain insights and thrive with the greatest expert advice on investing, taxes, retirement, personal finance, and more, sent right to your email. If you are considering adoption or have already welcomed a child into your family, you may be eligible for the significant adoption tax credit.
This credit is applicable to all children adopted, whether through public foster care, private domestic adoption, or overseas adoptions. One of its advantages is its flexibility: as a nonrefundable credit, any unused amount can be carried forward for up to five years, ensuring that you receive full benefits over time.
2024 Adoption Tax Credit Amounts
The adoption tax credit for 2024 is intended to alleviate the financial strain connected with adoption. This credit can considerably reduce your expenditures when adopting locally, privately, through foster care, or even internationally.
Because it is a nonrefundable tax credit, it can reduce your tax bill to zero. If your expenses are less than the maximum credit, you will not be refunded for the difference.
- Domestic Adoption: Applicable to private and foster care adoptions within the country.
- International Adoption: Covers the adoption of children from other countries.
- Nonrefundable Nature: Remember, it reduces tax liability but does not provide a refund for expenses below the credit amount.
- Carry Forward Option: Unused credits can be carried forward up to five years, ensuring you can maximize the benefit over time.
With these advice, adopting families may negotiate the financial issues while focusing on the joy of extending their family.
For those preparing to submit their tax returns in early 2025 for the 2024 tax year, there is good news: the maximum adoption credit has been raised to $16,810, up from $15,950 in 2023. Looking ahead to 2025 (returns submitted in early 2026), the amount will increase to $17,280.
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