You Can Claim an Adoption Tax Credit to Help Offset Expenses if You Adopted a Child
the Adoption Tax Credit helps cover qualifying adoption expenses and is adjusted annually for inflation
Adopting a child can be one of life’s greatest rewards as well as a significant financial commitment. The federal Adoption Tax Credit is designed to help offset qualifying adoption expenses. Key details, including the maximum credit and income limits, change each year, and some information circulating about past years is outdated. For example, the 2020 adoption credit was not refundable, refundability applied only in 2010 and 2011. Today, the credit remains nonrefundable, meaning it can reduce your federal income tax to zero and any unused portion can be carried forward for up to five years.
Current Maximum Credit and Income Limits
For the 2024 tax year, the maximum credit is $16,810 per child. This applies to both domestic and international adoptions, including adoptions of children with special needs. The credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) over $252,150 and is fully phased out at $292,150. These amounts are adjusted annually for inflation.
Qualifying Expenses and Documentation
Only expenses directly related to the legal adoption process qualify. These include:
- Adoption agency fees
- Court costs and attorney’s fees
- Travel expenses for you and the child (airfare, lodging, meals) while away from home
- Other reasonable and necessary expenses to finalize the adoption
Expenses must be unreimbursed and reduced by any employer-provided adoption assistance you exclude from income. Keep detailed documentation, receipts, invoices, travel records, and the adoption decree or placement order. If adopting a child with special needs, obtain the state’s special needs determination letter.
Special Needs Adoption Credit
If a state determines a child has special needs, you may claim the full credit amount regardless of your actual expenses. To qualify, the child must be a U.S. citizen or resident, cannot be returned to the birth parents’ home, and requires financial assistance to facilitate the adoption. Submit the state’s determination letter in lieu of expense documentation.
Domestic versus International Adoptions
For domestic adoptions, you may claim the credit in the year the adoption is finalized. For international adoptions, you claim the credit in the year the adoption is finalized in the foreign country and recognized by U.S. authorities. Keep consulate records, visa documents, and foreign court decrees to support your claim.
North Carolina State Adoption Assistance
North Carolina does not offer a state-level adoption tax credit. However, the NC Division of Social Services offers adoption assistance for special needs children, which may cover ongoing medical, therapy, and educational expenses. Contact your county DSS office to apply.
Claiming the Credit on Form 8839
File IRS Form 8839 with your federal tax return. Report all qualifying expenses, subtract any employer-provided benefits, and apply the MAGI phaseout rules. Keep copies of all supporting documents for at least three years in case of IRS review.
Employer Assistance
For 2024, up to $16,810 of employer-provided adoption benefits may be excluded from income. You can combine this exclusion with the adoption credit to maximize tax savings, but you cannot claim both for the same expenses.
Resources
See IRS Publication 968 and the instructions for Form 8839 at irs.gov. North Carolina families can also contact their county DSS office or visit the NC Division of Social Services website for assistance programs and resources.
By understanding the current rules, keeping proper records, and filing accurately, you can make the most of the Adoption Tax Credit to ease the financial impact of growing your family.