Qualified adoption expenses are essential costs incurred when adopting a child under 18 years or any disabled individual requiring care. In the United States, these expenses are defined as reasonable and necessary by the Internal Revenue Service (IRS) and make adopting parents eligible for an adoption credit or exclusion, which helps reduce their taxable income.
Key Takeaways
- Qualified adoption expenses (QAE) cover the costs to adopt a child younger than 18 or a disabled person needing care.
- These expenses include court costs, adoption, and attorney fees, and may be incurred before or after the adoption.
- The IRS sets limits on adoption tax credits: $15,950 per child for 2023 and $14,890 per child for 2022.
Understanding Qualified Adoption Expenses (QAE)
The IRS allows you to offset your tax bill through adoption credit, provided specific eligibility requirements. To report qualified adoption expenses, use IRS Form 8839.
Eligible taxpayers must submit IRS Form 8839 with details like the adopted child’s name, birth year, and identifying number. Additionally, taxpayers need to specify if the child has special needs or is foreign-born.
Tax credit for QAE phases out for individuals if their modified adjusted gross incomes exceed a threshold. Expenses reimbursed by an employer or government program or adopting a spouse’s child are not claimable.
If you adopt a U.S. resident or citizen child, you may be eligible for the credit, even if finalized in another tax year. The same rules may apply for adopting a foreign child.
2023 Credit Limit
The maximum allowable credit for adoption in 2023 is $15,950.
Maximum Qualified Adoption Expenses
The maximum credit for adoptions is $15,950 per child for 2023 and $14,890 per child for 2022. Note that the adoption tax credit isn’t refundable, meaning your total tax must match or exceed the credit to benefit fully.
For example, if your total tax for the year is $10,000, but you incur $14,000 in qualified adoption expenses, the maximum deductible is $10,000. Any remaining credit can be carried forward for up to five years.
For tax year 2023, if your modified gross income is $239,230 or less, you qualify for the full credit. It phases out and is completely gone past an income of $279,230.
For tax year 2022, the full credit applies if your income is $223,410 or less and phases out after $263,410.
Families who adopt a child with special needs are mostly eligible for the full credit in the year the adoption finalizes, regardless of qualifying expenses.
Examples of Qualified Adoption Expenses
Qualified adoption expenses, according to the IRS under Internal Revenue Code Section 23(d)(1), include:
- Reasonable and necessary adoption fees.
- Court costs and attorney fees.
- Travel expenses, including meals and lodging when away from home.
- Other expenses directly related to legally adopting an eligible child.
These may also apply before an eligible child is identified.
Exclusions
IRS prohibits certain expenses from being considered as qualified adoption expenses, such as those incurred to adopt a spouse’s child.
There are timing rules for when the credit may be taken and limits on costs for a singular adoption effort where a credit has been previously claimed.
When Can You Claim an Adopted Child on Your Taxes?
An adopted child, once legally finalized, can be claimed on your taxes if they meet all qualification criteria, treated similarly to a biological child.
Can I Claim Qualified Adoption Expenses for An Adoptee Older Than 18?
The credit applies only for adoptees under 18 unless they are physically or mentally incapable of self-care.
Can Same-Sex Couples Claim Qualified Adoption Expenses?
Yes, same-sex couples in states permitting same-sex parent adoptions can claim these expenses.
Are Qualified Adoption Expenses Different for Special Needs Children?
Expenses for special needs adoptions usually qualify for the maximum credit in the year of finalization, subject to previous claims and MAGI limits.
The Bottom Line
Adopting a child can help reduce your taxable income with qualified expenses. These must be reasonable, necessary, and reportable on Form 8839. Adherence to applicable income limits is critical to acquiring deductions.
Related Terms: adjusted gross income, court costs, attorney fees, special needs adoption.
References
- Internal Revenue Service. “Topic No. 607 Adoption Credit and Adoption Assistance Programs”.
- Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2023”.
- Internal Revenue Service. “About Form 8839, Qualified Adoption Expenses”.
- Internal Revenue Service. “Form 8839: Qualified Adoption Expenses”, Page 1.
- Internal Revenue Service. “Rev. Proc. 2021-45”, Page 9.
- Internal Revenue Service. “Rev. Proc. 2022-38”, Page 9.
- Internal Revenue Service. “Topic No. 607 Adoption Credit and Adoption Assistance Programs”.
