Adoption Tax Credit

The adoption tax credit is one of the IRS’s most heartwarming benefits, designed to help families offset the often hefty expenses of adoption. If you’ve recently adopted a child—or are in the process—you’ll want to know how this credit can ease your financial load. In simple terms, the adoption tax credit allows eligible taxpayers to claim qualified adoption expenses like legal fees, court costs, adoption agency fees, and even some travel expenses. While this is a nonrefundable tax credit (meaning it can reduce your tax bill but won’t result in a refund beyond what you owe), it can still offer up to $15,950 in 2023 (adjusted annually). So if you’re wondering how the IRS adoption credit works, who can claim it, how to carry it forward, and how it applies to special needs or international adoptions—this guide has all the answers. Understanding the ins and outs of this federal tax credit could save your growing family thousands and make the adoption process feel just a little more manageable.

What Is the Adoption Tax Credit?

The adoption tax credit is a federal tax benefit designed to help adoptive families recover some of the costs involved in the adoption process. Introduced in 1997, it’s been expanded and adjusted over the years to better reflect the real-world expenses families face.

Key Features:

• Available to U.S. taxpayers who adopt a child under age 18 or a person with special needs.
• Covers qualified adoption expenses.
• The maximum credit for 2023 is $15,950 per child.
• It’s a nonrefundable credit, but unused portions can be carried forward for up to 5 years.

What Counts as Qualified Adoption Expenses?

Not everything qualifies, but many of the essential costs are covered, including:

• Adoption agency fees
• Court costs and attorney fees
• Travel expenses (including meals and lodging)
• Home studies
• Placement fees

Note: Costs reimbursed by an employer or another program can’t be claimed again under the tax credit.

Who Is Eligible for the Adoption Tax Credit?

To qualify for the adoption tax credit:

• You must have incurred qualified expenses for an eligible child.
• The adopted child must be under 18, or physically or mentally incapable of self-care.
• You must file a federal income tax return (even if your income is low).
• Your modified adjusted gross income (MAGI) must be under the limit. For 2023:
  • Full credit available if MAGI is under $239,230
  • Phase-out starts at $239,230 and ends at $279,230

Domestic vs. International Adoptions

Domestic Adoption:

• You can claim the tax credit before the adoption is finalized, as long as you’ve incurred qualified expenses.

International Adoption:

• You can only claim the credit after the adoption is finalized.
• All expenses must be related to a child who is not a U.S. citizen or resident.

Special Rules for Special Needs Adoptions

If you adopt a child with special needs (as determined by your state), you can claim the full credit amount even if you didn’t spend that much on qualified expenses.

Example:

You adopt a child from foster care who qualifies as “special needs.” Even if your expenses were only $2,000, you may still claim the full $15,950.

When and How to Claim the Credit

You’ll need to file IRS Form 8839 along with your federal tax return. Here’s how:

1. Fill out Form 8839: Qualified Adoption Expenses
   • Report your total qualified expenses
   • Note if the adoption was finalized or in progress
2. Attach supporting documents (like placement agreements or court orders)
3. File your return electronically or by mail (e-filing is faster)
4. Carry forward unused amounts if your tax liability is less than your credit

Example Scenario

Let’s say you adopted a child in 2023 and spent $10,000 in expenses. Your tax bill is $5,000 this year.

• You claim $5,000 of the adoption tax credit in 2023.
• You carry forward the remaining $5,950 and can use it over the next 5 years.

Important Things to Know

• Nonrefundable: It won’t give you a refund above your tax liability.
• Carryforward Available: Up to 5 years for unused credit.
• No Double Dipping: Don’t claim what your employer reimbursed.
• State Credits May Apply: Some states offer additional tax incentives for adoption.

Forms & Tools You’ll Need

• IRS Form 8839 – Download here
• Instructions for Form 8839 – View here
• Taxpayer Advocate Guide on Adoption Tax Credit – Read here

FAQs

Q: Is the adoption tax credit refundable?
A: No, it’s nonrefundable—but unused portions can be carried forward for up to 5 years.

Q: Can I claim the adoption tax credit if I adopt my stepchild?
A: No, adoptions of stepchildren generally do not qualify.

Q: What if my employer reimbursed my adoption expenses?
A: You can’t claim the same expenses twice. Only out-of-pocket costs are eligible.

Q: Can same-sex couples claim the credit?
A: Yes, eligible taxpayers can claim the credit regardless of marital status or gender.