Adoption Credit Explained

Adopting new children into the family brings an indescribable level of joy, pride, and happiness. However, despite the love and satisfaction that grows from this amazing accomplishment, the adoption process is both uncertain and costly.

Nevertheless, thanks to the IRS, there is an adoption tax credit available to eligible adopting parents to help cover some of the adoption costs.


Key Takeaways:

  • The adoption credit is a tax credit that eligible taxpayers can claim to cover the expenses of adopting a child. In 2023, the maximum value of the adoption tax credit is $15,950 per adopted child, but as this is a non-refundable tax credit, the taxpayer will not be eligible to receive a tax refund if their adoption tax liability is less than the credit amount.
  • Some of the qualifying adoption expenses for this tax credit include certain adoption fees, legal fees, court costs, meals, lodging, and travel expenses related to the adoption, and alternative expenses directly related to the adoption process.
  • For a child to be considered eligible for the adoption credit, they must either be under the age of 18 or unable to mentally or physically take care of themselves without the help of a caregiver. 
  • There are income limits for the adoption credit. Taxpayers who earn a MAGI of less than $223,410 per year may be eligible for the full tax credit. Taxpayers who earn a MAGI between $223,410 and $263,410 may be eligible for a partial adoption credit. Taxpayers who earn a MAGI above $263,410 exceed the income limit and will not be considered eligible to claim the adoption credit.

What Is The Adoption Credit?

The adoption tax credit is a tax credit offered to qualifying taxpayers who adopted or initiated the adoption process during the tax year. 

How Much Is The Adoption Credit Worth?

In 2023, the adoption tax credit allows qualifying families to claim up to $15,950 in eligible adoption expenses for each eligible child. This means that even if the process of adopting a child rolls over between two different tax years, the maximum credit amount remains $15,950.

So, if a taxpayer spent $2,000 during 2023 in qualified adoption expenses, they will only have $13,950 left to claim in 2024 when the adoption is finalized.

Is The Adoption Tax Credit Refundable?

The adoption tax credit is an example of a non-refundable tax credit. This means that parents can claim up to $15,950 for expenses paid toward adoption fees, but if the tax bill related to adoption costs less than the credit amount, any excess money will not be awarded as a tax refund. However, the good news is that any leftover credit can be rolled forward and applied toward future tax returns for up to five tax years.

Which Expenses Qualify For The Adoption Credit?

Only certain expenses related to an adoption effort qualify for the adoption tax credit. In general, the expenses that will qualify for this tax credit are those that are reasonable and necessary to complete the adoption process.

Here are examples of qualifying adoption expenses:

  • Certain necessary adoption fees
  • Legal fees and court costs
  • Meals, lodging, and other travel expenses related to the adoption
  • Alternative expenses that are directly related to the process of legally adopting an eligible child

Who Can Claim The Adoption Credit?

Here are the eligibility requirements for parents to be able to claim the adoption credit:

Eligible Child Specifications

An eligible child for the adoption credit is an individual who is under the age of 18 or someone who is mentally or physically unable to take care of themselves. 

To be considered special needs in the context of the adoption tax credit:

  • The child with special needs must be a citizen or resident of the United States at the time the adoption process begins.
  • The state must have determined that the child should or cannot be returned to their parent’s home.
  • The state must have determined that the child will only be adopted if assistance is provided to the adopted parents.

Income Limitations

The IRS formats the adoption tax credit in a manner that applies a reduction or elimination of the tax credit for taxpayers who earn a certain modified adjusted gross income (MAGI). 

Full Tax Credit Eligibility

Taxpayers who earn a MAGI of less than $223,410 are eligible to claim the full adoption tax credit.

Partial Tax Credit Eligibility

Taxpayers who earn a MAGI between $223,410 and $263,410 are eligible to claim a partial, phased-out, or reduced adoption tax credit.

No Tax Credit Eligibility

Taxpayers who earn a MAGI of more than $263,410 exceed the income limitations and are not eligible to claim the adoption tax credit.

When To Claim The Adoption Tax Credit

Understanding when the time is right to claim the adoption credit depends on a few factors: when the adoption-related expenses were paid for, whether the adoption was a foreign adoption or a domestic adoption, and when, if ever, the adoption was finalized. 

If parents are adopting a child with special needs rather than basing their claim on the cost of adoption expenses, they should claim the tax credit the year that the adoption case is finalized.

If parents adopt internationally, they must also wait until the year the adoption is finalized before claiming the adoption credit for reimbursement.

If parents are adopting domestically, meaning within the United States, they can claim the adoption credit during the adoption process to cover expenses, as well as during the year of finalization or the year after the funds were spent.

How To Claim Adoption Tax Credit Using IRS Form 8839

Taxpayers can use IRS Form 8839, Qualified Adoption Expenses, to claim the adoption credit or exclusion when filing their regular federal income tax return. This tax form helps taxpayers figure out how much credit they are eligible to claim.

Frequently Asked Questions

Can I claim the adoption credit for my pets?

The adoption credit is only applicable when adopting a baby or child under the age of 18, or someone who is mentally or physically unable to care for themselves. For this reason, adopting animals from a shelter, including a dog or cat, will not be an eligible expense for claiming the adoption credit. 

Does adopting the child of your spouse count for the adoption tax credit?

No, qualified adoption expenses for the adoption credit do not include adopting the child of your spouse.

However, if you adopt your partner’s child when you are not legally married, this would not be considered a stepparent adoption, so the adoption tax credit may apply if there are qualifying adoption expenses.

Can I still claim the adoption credit if the adoption was unsuccessful?

Even if the adoption was unsuccessful, the adoption tax credit eligibility is not dependent on the success of the adoption. Therefore, you can still claim the tax credit for expenses related to the adoption process.

What proof is needed to claim the adoption tax credit?

As the adoption credit is applicable toward the qualifying adoption expenses, the taxpayer will need to submit proof to the IRS that the costs they are claiming are eligible. This evidence could be in the form of receipts, invoices, or other financial documentation. It is important to keep a copy of all related adoption information to ensure you can claim the highest adoption credit amount possible. 

Does the adoption credit carry forward into different tax years?

Adopting parents have a total of six years to use the adoption tax credit, so if their adoption tax liability wasn’t enough during the first tax year, they can use the rest of the tax credit in future tax years.

Understanding how tax credits work can save you a lot of money during the tax season, so if you have any questions about the adoption tax credit, be sure to reach out to a qualified tax professional to learn about your tax credit eligibility. When you’re ready to optimize your tax savings, schedule your free consultation with Ideal Tax to get started.

Author: Luis Ceja - Director of Operations
Author: Luis Ceja - Director of Operations

Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.

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