Do You Qualify for the Adoption Tax Credit?

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

By , J.D., USC Gould School of Law
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 can range from $7,000 to $30,000. The federal government wants to encourage adoptions and has established an adoption tax credit. For 2023, the amount of the allowable adoption credit is $15,950. This generous credit is a permanent part of the tax law.

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 might be able to claim the credit before the adoption becomes final.

But the credit isn't available for taxpayers at higher income levels. The adoption credit begins to phase out if your modified adjusted gross income (MAGI) is more than $239,230 in 2023, and it's completely phased out for taxpayers with a MAGI of more than $279,230 in 2023.

What Can the Credit Be Used For?

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:

  • 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.

How Much Is the Credit?

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.

Adopting Children with Special Needs

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:

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

What If The Adoption Is Unsuccessful?

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.

When Can You Claim the Adoption Tax Credit?

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.

How Do You Claim The Adoption Tax Credit?

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.

Your State Might Also Offer Adoption Tax Credits

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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