Under What Circumstances Can a Taxpayer Claim an Adoption Credit for a Failed Adoption?

Adopting a child can be expensive, and the IRS offers a tax credit to help offset some of these costs. However, not all adoptions are successful, leaving many prospective parents wondering if they can still claim the credit for expenses incurred during a failed attempt.

While the adoption must meet certain criteria, taxpayers may still qualify even if the process does not result in a finalized adoption. Understanding which expenses are eligible and how to document them is essential.

Determining Qualified Expenses

The adoption tax credit covers necessary and reasonable expenses directly related to the legal adoption process. The IRS recognizes adoption fees, court costs, attorney fees, and travel expenses as eligible. For example, a home study, a required evaluation of a prospective parent’s living situation, would typically qualify.

Certain expenses do not qualify. Costs reimbursed by an employer, government agency, or other entity cannot be claimed. Expenses related to adopting a spouse’s child are also ineligible. If an international adoption was not finalized, expenses generally cannot be deducted unless the adoption was completed in another country.

Timing affects eligibility. For domestic adoptions, qualified expenses can be claimed in the tax year after they were paid, even if the adoption was unsuccessful. This differs from international adoptions, where expenses can only be claimed once the adoption is finalized.

Claiming the Credit if the Adoption Is Not Finalized

Even if an adoption is not completed, taxpayers may still claim the tax credit for qualified expenses, as long as they were not reimbursed. For domestic adoptions that do not result in finalization, eligible costs can be claimed in the year following when they were incurred. For example, if a taxpayer paid expenses in 2023 for an adoption that did not proceed, those costs would be claimed on their 2024 tax return.

If multiple adoption attempts were made, each is treated separately for tax purposes. Expenses from one failed adoption cannot be applied to another attempt. The total credit claimed cannot exceed the maximum adoption tax credit limit for the given tax year, which for 2024 is $16,810 per child.

Documenting and Retaining Proof of Expenses

Maintaining thorough records is essential when claiming the adoption tax credit, especially for an adoption that was not finalized. The IRS may request documentation, and without proper proof, a claim could be denied. Receipts, invoices, and bank statements should clearly show the amount, date, and purpose of the expense. Detailed invoices from service providers, such as adoption agencies or attorneys, strengthen a taxpayer’s position in the event of an audit.

Beyond receipts, written agreements or contracts related to the adoption process provide additional support. For example, a signed agreement outlining services and costs from an adoption facilitator or consultant can verify the legitimacy of the expense. Correspondence with adoption professionals, such as emails confirming payments or services rendered, can serve as supplementary evidence. Keeping copies of canceled checks or credit card statements further reinforces the claim.

For travel-related expenses, additional documentation is required. Airfare receipts, hotel invoices, and meal expenses should be retained, along with records demonstrating the purpose of the trip. A travel log noting dates, locations, and reasons for travel—such as visiting birth parents, attending court hearings, or completing mandatory adoption-related meetings—helps justify these expenses. Without clear documentation, travel costs may be questioned by the IRS.