Updated for 2024 deduction dollars:

Now that 2025 is officially underway, it is time for families who finalized their adoptions in 2024 to take advantage of the 2024 Federal Adoption Tax Credit. Adoptive parents can find information about the Federal Adoption Tax Credit on the IRS website. This provision allows adopting parents to take a tax credit for “qualified expenses” to adopt a child. “Qualified adoption expenses” are reasonable and necessary adoption fees, court costs and attorney fees, traveling expenses (including meals and lodging), and other expenses directly related to the adoption. A tax credit is different from a tax deduction; it is better. A credit is an amount that is subtracted from the adopting parents’ tax liability. The maximum available tax credit for 2024 is $16,810.

The precise amount of the tax credit depends on the expenses incurred and the amount of taxes owed by the adopting parents. For example, if the adopting parents spent $10,000.00 in recoverable adoption costs but owe only $7,000.00 in federal taxes, they can take a tax credit for only $7,000.00 in the first year following the adoption. But they may carry forward the unused credit for five tax years or until it is used, whichever comes first. In a different scenario, if the adopting parents owe $30,000.00 in federal taxes in one year and pay $10,000.00 in recoverable adoption costs that same year, they can claim the full $10,000.00 tax credit, thus reducing their tax liability to $20,000.00.

For the adoption of a child with special needs the adopting parents may claim the entire available tax credit even if they have not expended that amount of money in adoption expenses. This is especially helpful for foster parents who adopt through the DSS system, where the children will often have special needs and the adoptive parents probably have few if any expenses that fit the definition of a “qualified adoption expense.”

An important limitation on the Federal Adoption Tax Credit is the income cap. Under the 2024 formula, adopting parents who earn no more than $252,150.00 are entitled to take the full credit. For adopting parents who earn between $252,151.00 and $292,150.00 in income, there is a reduced tax credit, and no tax credit is available for those earning more than $292,150.

For families hoping to adopt in 2025, the Federal Adoption Tax Credit has already been announced. The maximum available tax credit for 2025 is $17,280 for families who earn under $259,190 during the year. The tax credit is not available to families who earn a gross income of more than $299,190. Discussing the adoption tax credit with your tax professional is recommended so that your complete  IRS Form 8839 correctly and provided needed documentation.

Have questions? Please contact Thompson Dove Law Group, and we would be happy to help. Make sure to also talk with your tax preparer to see if your filing state also has a state tax credit for adoption.