How to Save Money on Adoption with the Adoption Tax Credit

A guide to understanding and claiming the adoption tax credit for qualified expenses.

What is the adoption tax credit?

The adoption tax credit is a federal tax benefit that helps eligible taxpayers reduce their tax liability for the year they adopt a child. The credit is based on the qualified adoption expenses that the taxpayer paid or incurred to adopt an eligible child. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, travel expenses, and other expenses directly related to the adoption.

The adoption tax credit is not a refundable credit, which means that it can only reduce your tax liability to zero. However, you can carry forward any unused credit for up to five years, or until it is fully used, whichever comes first. The credit is also subject to income limitations, which means that it may be reduced or eliminated if your modified adjusted gross income (MAGI) is above a certain threshold.

Who is eligible for the adoption tax credit?

To be eligible for the adoption tax credit, you must meet the following criteria:

• You must have adopted an eligible child, which is either a child under 18 years old, or a child of any age who is physically or mentally incapable of caring for themselves.

• The adoption must be final, which means that you have legally adopted the child and the adoption is not subject to being reversed or annulled.

• The adoption must not be from a step-parent, unless the child is a special needs child.

• The adoption must not be from a surrogate parent arrangement unless the child is a special needs child.

• The child must be a U.S. citizen, national, or resident, or you must have lived with the child in the U.S. for more than half of the year. Exceptions apply for certain international adoptions of special needs children.

How to claim the adoption tax credit?

To claim the adoption tax credit, you must file Form 8839, Qualified Adoption Expenses, with your federal income tax return. You must also attach the required documents to prove the adoption and the expenses, such as the adoption decree, the adoption agency statement, the receipts, and the Form 8839 Supplemental Information for Special Needs Adoptions, if applicable.

The amount of the credit you can claim depends on the year the adoption became final, the amount of qualified adoption expenses you paid or incurred, and your MAGI. For 2024, the maximum credit amount is $16,810 per child, and the MAGI phase-out range is $252,150 to $292,150.

The adoption tax credit can be a valuable benefit for adoptive parents who want to grow their family and save money on taxes. However, the credit is complex and has many rules and limitations. Therefore, it is advisable to consult a tax professional to prepare your tax return and claim the credit correctly.