What Is the Adoption Credit
The adoption tax credit is a federal tax credit that allows qualifying parents to offset the costs associated with adopting an eligible child. Unlike a deduction, which lowers your taxable income, a credit directly reduces the amount of tax you owe dollar for dollar. For the 2024 tax year, the maximum credit amount is $16,810 per eligible child. This number is adjusted each year for inflation, so it is always worth checking the current limit when you file.
Who Qualifies for the Credit
To claim this credit, the child being adopted must be under the age of 18, or be physically or mentally incapable of caring for themselves. The credit applies to both domestic and international adoptions, and there is also a special provision for children adopted from the U.S. foster care system. For foster care adoptions, parents may be able to claim the credit even if they had little to no out-of-pocket expenses, which is a significant benefit many people overlook.
Income also plays a role in how much of the credit you can claim. The credit begins to phase out for taxpayers with a modified adjusted gross income above a certain threshold and is completely eliminated once income reaches the upper limit. For 2024, the phase-out range starts at $239,230 and ends at $279,230.
What Expenses Count
Qualified adoption expenses include things like adoption fees paid to an agency, attorney fees, court costs, travel expenses when required for the adoption, and other costs directly related to the legal adoption of an eligible child. Expenses paid using funds from an employer-sponsored adoption assistance program cannot be counted again toward the credit, since that would mean claiming the same dollars twice.
How the Credit Works Across Tax Years
One thing that often confuses families is the timing of when the credit can be claimed. For domestic adoptions, you can claim expenses in the year they were paid, even if the adoption is not yet finalized. Once the adoption is finalized, any remaining expenses can be claimed in that year. For international adoptions, you can only claim the credit in the year the adoption becomes final. If the credit exceeds your tax liability for the year, the unused portion can be carried forward for up to five years.
Claiming the IRS Adoption Credit on Your Return
To claim the IRS Adoption Credit, you need to complete IRS Form 8839, which is titled Qualified Adoption Expenses. This form walks you through calculating the credit based on your expenses and income. You will also need to provide identifying information about the child. In some cases, especially with pending domestic adoptions, the IRS may accept a statement that identifies the child without a Social Security number, though this can vary.
It is worth keeping thorough records of every expense related to the adoption process, including receipts, invoices, and any documentation from the agency or court. These records support your claim and make the filing process smoother if the IRS ever requests verification.