Expanding your family through adoption can be a truly wonderful experience, yet it sometimes comes with significant costs. Fortunately, there’s a federal tax break that might offer some relief.
The adoption tax credit is a nonrefundable tax credit designed to ease the financial burden of the qualified costs associated with adopting a child. This credit is adjusted for inflation and has been increased for 2024. Moreover, the IRS recently announced an upward inflation adjustment for the adoption tax credit, along with other essential family tax breaks for 2025, which you’ll include in the tax returns filed in early 2026.
Understanding the Adoption Tax Credit
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If you’re considering adoption or have already welcomed a child into your family, you might be eligible for the valuable adoption tax credit. This credit applies to each child adopted, whether through public foster care, private domestic means, or international adoption. One of its benefits is its flexibility: as a nonrefundable credit, any unused portion can be carried forward for up to five years, ensuring you benefit fully over time.
2024 Adoption Tax Credit Amounts
The adoption tax credit for 2024 is specifically designed to ease the financial burden associated with adoption. Whether you’re adopting domestically, privately, via foster care, or even internationally, this credit can significantly offset your costs.
Since it’s a nonrefundable tax break, it can lower your tax liability to zero. However, if your expenses are less than the maximum credit, you won’t receive a refund 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 insights, adopting families can better navigate the financial aspects and focus on the joy of expanding their family.
For those planning to file their tax returns in early 2025 for the 2024 tax year, there’s good news: the maximum adoption credit has increased to $16,810, up from $15,950 in 2023. Looking ahead to 2025 (returns filed in early 2026), the amount will rise further to $17,280.