Adoption Tax Credit
The U.S. tax code provides a tax-related benefit to adoptive families for certain qualified expenses incurred while pursuing an adoption. In many cases, the IRS recognizes a broad range of adoption-related costs, which may include fees paid to an adoption agency, attorney fees, costs paid to or on behalf of a birth parent, medical expenses, and related services. These qualifying expenses are generally included when calculating the adoption tax credit.
A tax credit reduces the amount of federal income tax owed on a dollar-for-dollar basis. For many families, this can result in a refund if the credit reduces their tax liability to zero. The maximum credit amount is adjusted annually. For the 2025 tax year, the adoption tax credit is set at $17,280 per child, an increase from $16,810 in 2024.
The credit begins to phase out for families with a modified adjusted gross income (MAGI) exceeding $259,190 and is fully phased out for families with a MAGI of $299,190 or more. These income thresholds are also subject to annual adjustment.
The adoption of a child classified as having “special needs” may qualify for the full adoption tax credit amount without requiring proof of actual adoption-related expenses. In most situations, the credit is claimed in the year the adoption is finalized. Because individual circumstances vary, families should consult their accountant or tax professional to understand how the credit applies in their specific situation.
Key Points Regarding the Adoption Tax Credit
- A qualifying adoption may be eligible for an adoption tax credit of up to $17,280 per child for the 2025 tax year.
- The adoption tax credit is not refundable. This means the credit may only be used to reduce federal tax liability to zero.
- Any unused portion of the credit may be carried forward and applied to future tax years, subject to IRS rules.
Adoptions Involving Children With Special Needs
Certain children adopted through state foster care systems are classified as having “special needs” under federal tax law. In these cases, the full adoption tax credit may be available even if the adoption was subsidized by the state, provided all of the following conditions are met:
- The child was a U.S. citizen or resident at the time the adoption process began.
- A state (including the District of Columbia) determined that the child cannot or should not be returned to the child’s parents’ home.
- The state determined that the child would not be adopted without assistance being provided to the adoptive parents.
States may consider several factors when making a “special needs” determination, including:
- The child’s age or ethnic background;
- Whether the child is part of a sibling group or a minority group; or
- Whether the child has a medical condition or a physical, mental, or emotional disability.
If a child is not adopted through state foster care and does not receive a state adoption subsidy, the child may not be classified as having “special needs” for tax purposes. In those cases, adoptive families generally may claim the adoption tax credit only for documented, qualified expenses actually paid in connection with the adoption.
For additional information about the Adoption Tax Credit or how it may apply to your situation, please contact Dimitra S. Scott at Beresford Booth by email at info@beresfordlaw.com or by phone at (425) 776-4100.
