The adoption tax credit has increased for 2015.
Information regarding the 2015 adoption tax credit has been released and there’s good news for adoptive parents — the tax credit has increased.
According to the IRS, the adoption tax credit “offsets qualified adoption expenses, making adoption possible for some families who could not otherwise afford it.” For adoptions finalized in 2015, the federal adoption tax credit may provide assistance with qualified adoption expenses of up to $13,400 per adopted child (up from $13,190 in 2014). The credit is non-refundable meaning taxpayers are only eligible for the credit if they have federal income tax liability.
To be eligible for this year’s tax credit, the adoptive parent(s) must:
- Adopt a child other than a stepchild. The adopted child cannot be a child of the taxpayer’s spouse.
- Adopt a child that is either under the age of 18 or that is physically or mentally incapable of self-care.
- Fall within applicable income and dollar limitations (eligibility is affected by income). The income limit is based on modified adjusted gross income (MAGI). If your MAGI for 2015 is less than $201,010, you are eligible for the full credit. If your MAGI falls between $201,010 and $240,010, your credit is subject to a phase-out and will be reduced. Should your MAGI be above $240,010, you are not eligible for the adoption credit.
Qualified adoption expenses include reasonable attorney or agency fees, court costs, travel expenses (including meals and lodging while away from home), and other expenses that are directly related to the legal adoption of an eligible child. If the adoptive parent(s) do not have enough qualifying expenses to claim the entire credit in one year, it may be possible to carry the unused portion of the credit forward for up to five tax years. Please speak with a licensed tax professional for additional information.
Families that finalize that adoption of a U.S. child with special needs are eligible for the maximum $13,400 credit regardless of qualified adoption expenses. However, please note that the definition of “special needs” for adoption credit purposes does not necessarily mean a child with disabilities. A child has special needs for the purpose of the credit if:
- The child is a citizen or resident of the United States or its possessions when the adoption effort began;
- A state determines that the child cannot or should not be returned to his or her parent’s home; and
- The state determines that the child probably will not be adoptable without assistance provided to the adoptive family.
According to the IRS, “Generally, ‘special needs’ adoptions are the adoptions of children whom the state’s child welfare considers difficult to place for adoption.”
If you finalized your adoption in 2014, the adoption tax credit still applies as Congress and the Obama administration made it a permanent part of the tax code when they passed the American Taxpayer Relief Act of 2012. Details of the 2014 credit can be found by visiting the IRS’ website and may differ slightly from the specifics of the 2015 credit.
For more information regarding how an adoption tax credit could help you this year and for answers to other adoption-related questions, please contact the adoption attorneys and specialists at Bianco P.A. by calling 603-225-7170, toll-free at 800-262-8112, or by sending a message using our contact form.