Back when the new tax bill was going through its many revisions, a major tax credit was temporarily cut from the bill, but ended up making it in the final version. That tax credit was the incredibly popular adoption tax credit.
The adoption tax credit has been widely hailed by adoption advocates as a way to make adoption, which has an average cost of $25,000 to $40,000, more affordable for families. Adoption advocates have also noted that the adoption saves the government money in the long term, saving the government between $65,000 and $127,000 for every child that is adopted instead of placed in foster care.
The popularity of the tax credit, among both Democrats and Republicans (particularly pro-life Republicans who see adoption as an important alternative to abortion), was likely a big part of why it was added back into the tax bill and remains in effect today.
If you’re curious about the adoption credit or are thinking of using it this tax season, here are all the important facts about the credit you should know.
1. It’s Nonrefundable
The adoption tax credit is nonrefundable, which means it can’t reduce tax liability below zero. So, if you owe less than the credit amount, you won’t be able to get the full credit amount as a refund.
2. It Carries Over
While the credit is nonrefundable, it does carry over to the next year, for up to five years maximum.
3. You May Be Able To Exclude Employer Assistance From Tax
Those who received financial assistance from their employer (using a qualified adoption assistance program) may be able to exclude the assistance amount from tax.
4. There Are Special Rules For Special Needs Children
Those who adopt a child with special needs may be able to take the tax exclusion even if they didn’t pay any qualified adoption expenses.
5. Non-Children May Be Eligible
All adopted children under the age of 18 may be eligible for the credit, but those who are over 18 but cannot physically or mentally care for themselves may also be eligible for the credit.
6. Expenses Must Qualify For the Credit
All claimed adoption expenses under the credit must be “reasonable and necessary.” Adoption fees, court costs, attorney fees, and travel expenses are among the expenses that can qualify toward the credit.
7. The Credit May Be Claimed For Foreign or Domestic Adoptions
Both foreign and domestic adoption expenses are eligible for the credit, though what expenses can be claimed differs between the two types of adoption.
8. There Are Income Limits
Claiming adoption credits or exclusions has income limitations. For 2017, the credit is reduced for those whose modified adjusted gross income is between $203,541 and $243,539, and those whose modified adjusted gross income exceeds $243,539 may not claim the credit or exclusion.