While becoming a parent is priceless, the cost of adoption can be very high. Foster care is typically the least expensive path to adoption, costing only a few thousand dollars typically. While private and international adoptions easily exceed $30,000 and more frequently cost $60,000 or more in adoption expenses. The IRS has an adoption tax credit to help offset some of the costs. 

How much is the adoption tax credit for 2023

This year, the 2023 adoption tax credit increased by $1060 since 2022 due to inflation. If you qualify for the full credit, the adoption tax credit for 2023 is $15950.

The adoption tax credit directly reduces your tax bill, versus a tax deduction which lowers your taxable income. The adoption tax credit won’t be refunded to you if the credit is greater than your tax bill, but the leftover credit can be applied to your future tax bills for up to five years.

Who can claim the 2023 adoption tax credit?

You can claim the credit if you are within the income thresholds, have qualifying expenses, and adopt a child under 18 years old. If your child is special needs and dependent, you may still qualify if they are past 18 years of age. 

The credit does not, however, extend to step-parents adopting a spouse’s child.

The adoption tax credit can be claimed for qualifying expenses, such as:

• Adoption agency gees
• Legal and court fees
• Travel expenses, including meals and lodging
• And other directly related expenses.

Income limits to claim the adoption tax credit

You can qualify for the full credit if your income is below $223,410. The credit begins to phase out if your income is between $223,410 and $263,410. Once you exceed $263,410 in modified adjusted gross income, you no longer qualify for the credit.

If you are within the income limitations, you can claim the adoption expense amount or the full credit, whichever is lesser. 

Special needs adoption tax credit 

Additionally, if your child is special needs, you can claim the full credit regardless of your actual adoption expenses, even if they are substantially less. However, the modified adjusted gross income limits may still apply.

How to apply for the adoption tax credit for 2023

If you claim the adoption tax credit, you will need form 8839. We recommend you seek a tax consultant if you have any questions to ensure you receive your maximum credit to reduce your tax burden. 

We are tax and financial planners in Florida, helping individuals and businesses with tax planning, financial planning, and more.

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