Adopting a child is expensive. If you adopt through an adoption agency or privately, the process can cost anywhere from $5,000 to $40,000 or more. International adoptions might range from $7,000 to $30,000. The federal government wants to encourage adoptions and has established an adoption tax credit.
For tax year 2024 (the return you file in 2025), the amount of the allowable adoption credit is $16,810. (It goes up to $17,280 for tax year 2025.) This generous credit is a permanent part of the tax law.
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 might be able to claim the credit before the adoption becomes final.
But the credit isn't available for taxpayers at higher income levels. You can qualify if your modified adjusted gross income is $252,150 or less in 2024. The credit is reduced for incomes between $252,151 and $292,150 and unavailable if your income exceeds $292,150 (again, for the 2024 tax year).
The credit applies to all reasonable and necessary adoption expenses, including adoption fees, court costs, attorneys' fees, travel expenses (including meals and lodging while away from home), and other expenses directly related to the legal adoption of an eligible child. However, you can't claim the credit for:
Unless you adopt a child with special needs, the adoption credit is limited to the amount of your out-of-pocket adoption expenses. Moreover, the credit isn't refundable, meaning you only benefit from it if you owe federal income taxes.
But 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 the remaining $2,000 credit forward to deduct in any of the next five years.
If you adopt a child with special needs, you're 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're still entitled to the full credit amount. A child has special needs if:
If your attempt to adopt a U.S. child proves unsuccessful, you may still claim the full adoption tax credit. You do so the year after the adoption failed. On the other hand, expenses for a foreign adoption (where the child wasn't a U.S. citizen or resident at the time the adoption process began) qualify only if you finalize the adoption.
If you adopt (or attempt to adopt) a U.S. child, you may claim the adoption tax credit the year after you incurred the adoption expenses. But if you finalize the adoption the same year you incurred the expense for a U.S. child adoption, you may claim the credit that year. You may claim the credit for an international adoption only the year after the adoption was finalized.
To claim the adoption tax credit, you must complete IRS Form 8839, Qualified Adoption Expenses, and include it with your income tax return. Be sure to keep receipts and other documentation for your adoption expenses, as well as the paperwork showing you adopted (or attempted to adopt) a child. You don't need to file these with your tax return. Just keep them with your records.
To learn more about the adoption credit, visit the IRS website on the topic.
Many states offer adoption tax credits of their own that you can use to reduce your state income taxes. The amounts vary from state to state. Check with your state tax department for details.
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