Taxpayers and American citizens who adopt a kid can be eligible to claim the adoption tax credit after paying their out-of-pocket expenses for the adoption. Examples of these expenses are travel expenses, court and attorney fees, adoption fees, etc. The value of the tax credit depends on what they spend.
What is the value of the Adoption Tax Credit?
To take care of inflation, there is a little increase in the adoption tax credit every year.
In 2021, someone who only had $11,000 in qualifying expenses will not be eligible for the entire $14,440 since the credit depends on the amount spent. In the same way, someone who spent $25,000 will be limited to a credit of $14,400 with a single exception. Adopting a kid with special needs gives the ticket to claim the full amount.
This is a nonrefundable credit that will cancel any tax liability someone owes without getting a refund if the credit exceeds the tax debt amount. This means that someone with a tax debt of just $5,000 who qualifies for the entire $14,400 will receive only the $5,000 bills.
One can carry the excess bill for as long as five years, so you can claim the remaining $3,400 in the years to come.
The Range for Income Phaseout
There are phaseout ranges for the adoption tax credit, which depends on the taxpayer's modified AGI, which is similar to the adjusted tax credit for many taxpayers.
Any income not part of the tax that you used with the foreign earned income exclusion should be included for you to establish the adoption credit’s phaseout range. Uncle Sam provides a worksheet to figure the MAGI present in Form 8839. This is the household’s adjusted Gross Income with any tax exempt interest income & certain deductions, added back. Also, there is a constant adjustment for these figures to take care of inflations.
As long as the MAGI is above the maximum range, one cannot claim the credit. The more someone earns, the more the credit one can claim reduces. In 2021, the only people that can claim are people with MAGI between $216,600 and $256,660
Further Eligibility Requirement
For one to claim this credit, the kid must be qualified, and the expenses for the adoption must be from your personal expenses. Kids that are eligible are those at age 17 or younger. Also, any child that is a US citizen can be of any age. Also, a resident alien who is mentally or physically incapable of taking care of themselves does qualify.
To estimate the expenses for qualified adoption, one will have to add up the entire expenses that have to do with the adoption and remove any amount reimbursed by the employer, agency, or another firm.
Even if the adoption fails, one might still get the credit provided that there was another successful adoption that follows. However, both adoption efforts will be classified as a single adoption which will have a dollar limit for each eligible kid.
The best time to claim the Adoption Credit.
It is possible for one to claim the credit in the year after the adoption expenses were paid, provided they were paid before the final adoption. Also, one can claim it in the same year for all costs paid the same year as long as the adoption was last in the said year. One could take the adoption credit in a year that they paid the expenses if it happened in the year after the final adoption.
However, there are various rules for a kid that is a foreign national. In this case, one can take the credit in the exact year the adoption process was finalized.
For you to claim the adopted child as one of your dependents, you need to apply for the adoption tax identification number if the kid does not have a social security number.
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