How does the adoption tax credit work?
For tax year 2024, the adoption tax credit can reduce your tax liability by as much as $16,810. The maximum adoption tax credit for tax year 2025 is $17,280. To qualify for the credit, taxpayers must adopt, or have tried to adopt, an eligible child and have paid qualified adoption expenses. IRS Form 8839 is used to calculate the amount of adoption tax credit a taxpayer is eligible for, and the completed form should be attached to the tax return to claim the credit.
An eligible child is one who is either younger than 18 or physically or mentally incapable of self-care. The state must have determined that the child could not reasonably be returned to their parents’ home and that the child could not be adopted without assistance from the state. An additional credit may be available if the adoption is of a special needs child. A special needs child must have been a U.S. citizen or resident at the time the adoption process began. States make eligibility determinations based on a variety of factors, including:
- The child’s ethnic background.
- The child’s age.
- The child’s minority status.
- Whether the child has siblings.
- Whether the child has a chronic medical condition.
- Whether the child has an emotional or physical handicap.
The adoption tax credit is subject to income limitations. If a taxpayer’s modified adjusted gross income (MAGI) falls within a certain range, the credit is either reduced or eliminated. Taxpayers with MAGI below $252,150 are eligible for the full adoption tax credit. Taxpayers with MAGI above $292,150 are not eligible to receive any credit. Taxpayers with MAGI between $252,150 and $292,150 may have their credit reduced or may not receive any credit, depending on their filing status. Additionally, taxpayers who file as married filing separately are generally not eligible for the adoption tax credit.
Which adoption expenses qualify for the adoption tax credit?
There are a variety of expenses that may be involved when adopting a child. Some of the expenses that may qualify as adoption expenses include:
- Reasonable and necessary adoption fees.
- Court costs and legal fees.
- Travel expenses, such as meals and lodging, incurred as part of the adoption process.
- Certain other expenses that are directly related to the legal adoption of an eligible child.
Adoption expenses may be deductible even if the taxpayer incurs the expenses before an eligible child has been identified. For example, if a prospective adoptive parent pays for a home study to begin the adoption process, the parent may be able to claim those expenses as qualified adoption expenses.
For tax year 2024, the adoption tax credit is worth up to $16,810 of the qualified adoption expenses. In 2025, the adoption tax credit will be worth up to $17,280. Generally, if a taxpayer adopts a U.S. child that a state has determined to have special needs, the taxpayer is eligible for the maximum adoption tax credit, even if the taxpayer did not incur qualified adoption expenses equal to or greater than the maximum adoption amount.
If you are unsure of how much adoption tax credit you are eligible for, a Tax Pro can help ensure you receive the maximum credit.
What expenses don’t qualify for the adoption tax credit?
Some expenses related to an adoption do not qualify for the adoption tax credit. Below are some expenses that are not considered qualified adoption expenses:
- Expenses that violate state or federal law.
- Expenses associated with surrogate parenting arrangements.
- Expenses associated with the adoption of your spouse’s child.
- Expenses paid with funds received from a government program.
- Expenses allowed as a credit or deduction under any other federal income tax provision.
- Expenses paid or reimbursed by an employer or someone else.
For an international adoption, the adoption must be finalized to be eligible for the adoption tax credit. While a failed U.S. adoption may qualify for the credit, failed international adoptions generally do not qualify.
When do I claim the adoption tax credit?
Determining when to claim the adoption tax credit requires assessing when the qualified expenses were paid, whether the adoption is for a U.S. or foreign child, and when, if ever, the adoption was finalized.
If you are adopting a U.S. child, you generally claim the adoption tax credit in the year after you incur the qualified adoption expenses or the year the adoption is finalized, whichever comes first. For example, if you pay for a home study in 2024 but your adoption is not finalized until 2025, you can claim the full adoption tax credit on your 2025 tax return. However, if you pay for a home study in 2024 but your adoption is not finalized until 2026, you can typically claim the home study expenses on your 2025 tax return. You would then claim the qualified adoption expenses from 2025 and 2026 on your 2026 tax return. Note that in this scenario, the amount of credit claimed on your 2024 tax return would reduce the amount you are eligible to claim in 2026.
An important detail to remember is that you can claim the adoption tax credit for a U.S. child even if the adoption fails and is not finalized. However, if your adoption is for a foreign child, you can only take the credit once the adoption has been finalized.
If you have more questions about when or how to claim the adoption tax credit, reach out to a Rocket Legal Pro for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
