Adoption Tax Credits & Legal Eligibility

Adopting a child can qualify the adoptive parent for a substantial tax credit. The tax credit applies to anyone who incurs out-of-pocket costs to adopt a child who is younger than 18 or a child who is disabled. The child can come from anywhere in the world. The credit is reduced for people whose modified adjusted gross income exceeds a certain amount, and it is eliminated altogether if their modified adjusted gross income exceeds a higher threshold. Some states offer adoption tax credits as well, which can be applied toward state income taxes.

The adoption credit is not refundable, so you can receive it only if you owe income taxes to the federal government in that year. If your tax obligation is less than the credit, such that you do not use the full credit amount, you can apply the remainder to your tax obligation over the next five years. You can claim the adoption tax credit by completing Form 8839 and submitting it with your tax return. You should make sure to keep records justifying your adoption-related costs, although you do not need to submit them.

Qualifying Expenses

You can apply the credit to any expenses that are related to the adoption, as long as they are necessary and reasonable. These can include legal costs, travel costs, and any fees required to complete the adoption. The credit is not available for expenses related to adopting a stepchild, expenses that are covered by public benefits, or payments that are reimbursed by an employer or another private entity. You cannot get a credit for making payments to a surrogate parent or for any illegal payments related to an adoption.

If you adopt a child who qualifies as a special needs child, you can receive the full adoption credit regardless of whether you actually spent the full amount on the out-of-pocket costs of the adoption. A child will qualify as a special needs child only if they are a citizen or resident of the U.S., and a state has decided that they cannot or should not be returned to the home of their current parents. Also, a state must have decided that the special needs child probably will not be adopted unless the adoptive parents receive assistance.

When to Claim the Tax Credit

You can claim the adoption credit for a U.S. child in the year after you incurred the costs related to the adoption. If the expenses arose in the same year that the adoption was finalized, however, you can claim the credit in that year instead. You must claim the adoption credit for an international child in the year after the adoption was finalized.

You can receive the full amount of the tax credit if you try to adopt a U.S. child, but the adoption eventually falls through. You would need to claim the credit in the year after the adoption failed. If an adoption of a child who was not a U.S. citizen or resident falls through, you will not be able to claim the credit at all.

Last reviewed October 2024