Are Adoption Expenses Tax Deductible?

Updated on February 5, 2024

At a Glance

  • Adoption expenses can be offset by the Adoption Tax Credit provided by the IRS.
  • While expenses themselves are not deductible, the credit helps lower tax bills and covers adoption fees, court costs, and travel expenses.
  • Eligibility criteria apply, and detailed record-keeping is necessary. Consult tax professionals for accurate guidance.

Adopting a child is a life-changing and rewarding experience for many families. Along with the emotional journey and the legal process, adoption also involves various expenses. To support adoptive parents, the Internal Revenue Service (IRS) offers financial assistance in the form of an Adoption Tax Credit, which can offset some of the costs associated with the adoption process. Below, we will discuss the nature of the Adoption Tax Credit, who qualifies, and how to claim it on your tax return.

What Is An Adoption Expense?

An adoption expense refers to the costs associated with the adoption process. While adoption expenses themselves are not directly deductible, the Internal Revenue Service (IRS) provides an Adoption Tax Credit to offset some of these costs. The credit can help lower your tax bill and may include adoption fees, court costs and attorney fees, travel expenses, and other directly related expenses.

Understanding the Adoption Tax Credit

While adoption expenses themselves are not directly deductible from your taxable income, the IRS provides a non-refundable tax credit for qualified adoption expenses. This credit is designed to lower your tax bill, and, if the credit is larger than your tax liability, it can be carried forward for up to five years.

Qualifying Adoption Expenses

Qualifying adoption expenses may include:

  • Adoption fees
  • Court costs and attorney fees
  • Travel expenses while away from home
  • Other expenses directly related to the adoption of an eligible child

For more details on what qualifies as an adoption expense, review the IRS’s Adoption Tax Credit page.

Eligibility for the Adoption Tax Credit

  • Domestic and International Adoptions: The Adoption Tax Credit is available for both domestic and international adoptions.
  • Special Needs Adoptions: In the case of adoptions of children with special needs, the IRS allows adoptive parents to claim the entire credit regardless of actual out-of-pocket expenses.

Exclusions and Income Limitations

There are income limits for claiming the Adoption Tax Credit. As your modified adjusted gross income (MAGI) increases, the credit amount you’re eligible for is phased out. The credit is not available if you exceed the income limit threshold set by the IRS, which is updated annually.

For the most current information about the income phase-out limits and the maximum credit amount, refer to the Adoption Benefits FAQs on the IRS website.

Claiming the Adoption Tax Credit on Your Tax Return

To claim the Adoption Tax Credit, you will need to complete Form 8839, Qualified Adoption Expenses, and attach it to your Form 1040 or Form 1040-SR. You’ll need to provide the required information about the adopted child and summarize the qualified adoption expenses incurred.

Documentation and Record Keeping

Keep detailed records of all adoption-related expenses, as you may be required to substantiate the costs when claiming the credit. Documentation can include receipts, court documents, agency statements, and travel records.

Learn More About Tax Deductions

FAQ: Adoption Expenses and Tax Deductions

1. What Constitutes Adoption Expenses for Tax Purposes?

Adoption expenses for tax purposes include all the necessary and reasonable costs directly related to the legal adoption of a child. These can include court fees, attorney fees, traveling expenses (if they are directly related to the adoption process), adoption agency fees, and other expenses that are directly associated with completing the adoption.

2. Are Adoption Expenses Tax Deductible?

While adoption expenses themselves are not tax-deductible as a separate item, they can qualify for the Adoption Tax Credit. This credit allows adoptive parents to offset a portion of their adoption expenses against their tax liabilities, effectively reducing the overall cost of adoption.

3. How Does the Adoption Tax Credit Work?

The Adoption Tax Credit is a non-refundable credit that reduces the amount of tax you owe on a dollar-for-dollar basis. The credit applies per child and can be carried forward for up to five years if the credit exceeds your tax liability in the year of adoption.

4. Can I Claim Adoption Expenses for Adopting a Stepchild?

Typically, expenses incurred in adopting a stepchild are not eligible for the Adoption Tax Credit. The credit is generally available for the adoption of children who are not biologically related to the adoptive parent.

5. Are There Any Income Restrictions for Claiming Adoption Expenses?

Yes, there are income restrictions for claiming the Adoption Tax Credit. The credit begins to phase out for taxpayers with modified adjusted gross incomes above a certain threshold and is completely phased out at higher income levels. These thresholds are adjusted annually for inflation, so it’s important to refer to the current year’s tax guidelines or consult with a tax professional to understand the specific income limits applicable to your situation.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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