Do You Qualify for the Adoption Tax Credit?

If you're thinking of adopting, don't miss this generous tax credit.

Adopting a child is expensive. If you do it through an adoption agency or privately, it can cost anywhere from $5,000 to $40,000 or more. International adoptions can range from $7,000 to $30,000. The federal government wants to encourage adoptions and has put its money where its mouth is by establishing an adoption tax credit.

For 2017, the amount of the allowable adoption credit is $13,570 (it was $13,460 in 2016). This generous credit was made permanent under the fiscal cliff tax deal enacted on January 1, 2013.  

To find out more about the general adoption process, see Nolo's section on Adoption, Guardianship, and Parenting.

Who Qualifies for the Credit

You qualify for the adoption tax credit if you incur out-of-pocket expenses to adopt a child under 18 years of age, or a child of any age who is physically or mentally disabled. The child can be a United States citizen or resident alien (a "U.S. child" in IRS parlance), or a nonresident alien. If you attempt to adopt a U.S. child, you may be able to claim the credit before the adoption becomes final.

What Can the Credit Be Used For?

The credit applies to all reasonable and necessary adoption expenses, including court costs, attorney fees, traveling expenses (including meals and lodging while away from home), and other expenses directly related to the legal adoption of an eligible child. Expenses for a foreign adoption (where the child was not a U.S. citizen or resident at the time the adoption process began) qualify only if you actually adopt the child.

You cannot claim the credit for:

  • expenses for adopting your spouse’s child
  • payments to a surrogate parent
  • payments that violate state or federal law,
  • payments that are reimbursed by your employer or any other organization, or
  • expenses you paid using funds you received from a federal, state, or local program.

The adoption credit begins to phase out if your modified adjusted gross income (MAGI) is more than $203,540 in 2017 ($201,920 in 2016) and it is completely phased out for taxpayers with MAGI of more than $243,540 in 2017 ($241,920 in 2016).

Unless you adopt a child with special needs, the adoption tax credit is not refundable, meaning you only benefit from it if you owe federal income taxes. However, any unused credit amount can be carried forward to reduce your tax liability for the next five years until the credit is used up. For example, if your tax liability is $10,000 and your credit is $12,000 that tax year, the adoption credit would reduce your tax liability to zero for that tax year and you could carry carry the remaining $2,000 credit forward to deduct in any of the next five years.

Adopting Children with Special Needs

If you adopt a child with special needs, you are entitled to claim the full amount of the adoption credit, even if your out-of-pocket expenses are less than the tax credit amount. For example, even if you incur no expenses to adopt a special needs child, you are still entitled to the full credit amount.

A child has special-needs if:

  • the child is a United States citizen or resident
  • a state determines that the child cannot or should not be returned to his or her parent's home, and
  • a state determines that the child probably will not be adopted unless assistance is provided.

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