As the Tax season started on January 23, the IRS posted another tax tip. This time it’s all about Adoption Tax Credit.
According to the IRS, taxpayers who adopted a child or started the adoption process in 2021 may be eligible for the adoption credit. This credit can be applied to international, domestic, private, and public adoption.
Here is some basic information for eligibility:
- The adopted child should be below 18 years old. To qualify the adopted person aged 18 years old and above, they must be unable to take care of their physical needs.
- Form 8839, Qualified Adoption Expenses, must be filled out by taxpayers. This form will become the bases for the amount of credit you can claim on your tax return.
- In some circumstances, a registered domestic partner may cover the adoption costs. These may also be regarded as eligible costs if they reside in a state that permits a same-sex second parent or co-parent to adopt their partner’s child.
Some information in regards to qualified expenses and amount of credit:
- Taxpayers can claim up to $14,440 per eligible child for adoption credit from their 2021 tax return.
- The amount of credit is affected by income limits.
- Qualified expenses include:
- The credit amount is limited to the taxpayer’s tax due for 2021 and is not refundable. Any credit from their unpaid taxes for 2021 may be carried forward for five years.
Expenses during the processing of adoption can also be covered by the adoption tax credit. The qualified expenses include the necessary adoption fees, legal and court fees, travel costs associated with adoption, and other expenses in connection to legal processing. In instances the taxpayer pays some expenses before an eligible child is identified, the said expenses may be qualified as adoption expenses. For example, some prospective adoptive parents pay for a home study before adopting.