While the joy of welcoming a child into your family is priceless, the adoption journey is often expensive.
Thankfully, the U.S. tax code does have support for adoptive families through the adoption tax credit and deductions for certain adoption-related expenses. In today’s post, I’ll explain everything your family needs to know about these adoption tax benefits.
What is the adoption tax credit?
The adoption tax credit is a federal tax credit designed to help offset the expenses paid to adopt an eligible child. The IRS defines an “eligible child” as one that is adopted domestically or internationally through a private or public foster care or adoption agency. The child must also be younger than 18 years old unless they are unable to physically take care of themselves.
The credit is nonrefundable, which means that if it takes your tax bill below $0, you won’t be refunded any excess. However, you can carry over any excess credit to future tax years for up to 5 years.
Additionally, the tax credit begins to phase out and becomes unavailable if you have a high modified adjusted gross income (MAGI). For tax year 2024, the credit begins to phase out if your MAGI is $252,150, and it is unavailable if your MAGI is above $292,150.
What expenses qualify for the adoption tax credit?
Expenses that qualify for the adoption tax credit include:
- Adoption fees that are deemed “reasonable and necessary”
- Fees paid before the child is identified like fees for a home study
- Legal fees and court costs
- Adoption-related travel expenses like meals and lodging
- Other expenses directly related to the legal adoption of the child like home remodel fees if you had to update your home to meet adoption requirements
Expenses that do NOT qualify for the adoption tax credit include:
- Any fees associated with adopting your spouse’s child
- Any fees associated with a surrogacy plan
- Any fees reimbursed by your employer
An important note here is that if your employer has a program where they reimburse you for adoption expenses, you can’t also claim that reimbursed amount as part of your adoption tax credit. However, you can exclude that amount from your income, which really makes it an adoption tax deduction. And you can take this deduction in addition to the tax credit!
How much is the adoption tax credit?
As you can see in the chart below, the adoption tax credit typically increases each year. Also, the amount applies to each adopted child.
| Adoption Tax Credit | |
|---|---|
| 2024 | $16,810 |
| 2023 | $15,950 |
| 2022 | $14,890 |
How do I claim the adoption tax credit?
To claim the adoption tax credit, you’ll complete Form 8839: Qualified Adoption Expenses and attach it to your federal income tax return. You should keep all your receipts and documentation of your adoption expenses in case you need to show your records to the IRS.
When can I claim the adoption tax credit?
When you’re able to claim the credit depends on whether your adoption is domestic or international:
- Domestic: You can claim the credit for expenses in the tax year after you incur them, even if the adoption isn’t (and never is) finalized. Once it is finalized, you can claim any additional qualifying expenses in that tax year.
- International: You can only claim the credit in the year the adoption is finalized. Expenses incurred for failed international adoptions can’t be claimed.
What are the special tax credit rules for adopting a child with special needs?
If you’re adopting a child from the U.S. with special needs, you may qualify for the full adoption tax credit even if you don’t have expenses for the full amount. To qualify for the full amount, the following conditions need to be met:
- The child was a citizen or resident of the U.S. at the time the adoption began.
- The state or territory determined that the child shouldn’t return to their birth parents.
- The state determined that the child is unlikely to be adopted without assistance because of their age, ethnicity, physical or mental disability, or other factor.
- The state officially designated the child as having special needs.
- The adoption is finalized.
Depending on which state you live in, you may also qualify for state adoption tax credits or deductions. These tax benefits vary widely, so you’ll need to check your state’s tax law or consult a certified public accountant.
Adoption is obviously an incredibly meaningful and life-altering decision for you and your family. Like with any big decision, it’s important to plan ahead financially. To make the most of any tax benefits you could receive for adoption, here are my 3 most important tips:
Are there any additional tax benefits to adopting a child?
Abridged by Amy
