The Federal Adoption Tax Credit allows families to reduce their tax liability for qualified adoption expenses. It is claimed in the year the adoption becomes final, but can include any qualified expenses paid in that year or previous ones. We’ve recently learned the maximum credit has increased yet again- it will be $13,460 dollars for 2016.
If that is more than you owe in federal taxes for the year, you’ll actually receive benefits on future tax filings. The remainder can be carried forward for up to five years. The guidelines permit families to include all “reasonable and necessary” adoption costs, including agency and international fees, attorney fees, even travel, lodging, and meals.
An important limitation on the Federal Adoption Tax Credit is the income cap. Under the 2016 formula, adopting parents who earn no more than $201,920 dollars are able to take the full credit. For adopting parents who earn between $201,920 and $241,920 dollars, there is a reduced tax credit, and no tax credit is available for those earning more than $241,920.
Carolina Adoption Services advises you to speak to your tax professional about the Federal Adoption Tax Credit!